Piraeus Bank Group actively participates in initiatives that promote sustainability and has played a leading role in shaping the UN Principles for Responsible Banking (PRB). The Group aims to actively support corporate clients that set sustainability targets for their operations. This is achieved with the formulation of a Sustainability-Linked Loans Framework that describes the methodology for the inclusion of ESG metrics into Piraeus Bank’s corporate loans, combining growth and profitability alongside social and environmental sustainability criteria. These particular loans are Sustainability-Linked Loans (SLLs).
Defining sustainability-linked loans
Sustainability-Linked Loans are any type of loan instruments for which economic characteristics can vary depending on whether the borrower achieves predetermined sustainability performance objectives. The sustainability objectives are defined through Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs).The SLLs are loans, and their main characteristics will follow the overall standards applied by Piraeus Bank. Sustainability-linked finance is designed to incentivize the borrower’s pursuit of environmental, social, or governance (ESG) objectives by providing a financial incentive to achieve its contractual ESG targets.
Main categories of ESG indicators
The main categories for selecting particular KPIs and setting the corresponding SPTs are indicatively the following:
Environment
- Greenhouse Gas Emissions
- Energy Efficiency
- Water usage and recycling
- Protection of biodiversity
Society
- Diversity and equal opportunities
- % of Women in Management positions
- Employees’ training and development
- Health and safety
Governance
- Corporate ethics and transparency
- Compliance
- Anti-bribery policy and measures
- Sustainable procurement policy
ESG Indicators & SPTS
SLLs aim to support a borrower’s efforts in improving its sustainability profile over the term of the loan. They do so by aligning loan terms to the borrower’s performance, which is measured using one or more sustainability objectives (or ESG metrics). The sustainability objectives are defined through Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs).
The KPIs must be:
- relevant, core and material to the borrower’s overall business, and of strategic significance to its current and/ or future development
- measurable or quantifiable on a consistent methodological basis
- externally verifiable
- able to be calibrated as much as possible using an external reference or definitions to facilitate the assessment of the SPT’s level of ambition
- focused on the improvement of the company’s environmental footprint as well as its social and governance practices
A clear definition of the KPIs should be provided in the SLL and should include the applicable scope or perimeter, as well as the calculation methodology.
Sustainability Performance Targets are quantitative, measurable objectives to which borrowers commit in relation to KPIs.
SPTs are set along three parameters:
- A baseline, i.e., the historical level achieved by the company at a certain point in time, against which any improvement will be measured.
- One or several specific levels to be achieved in the future for one given KPI.
- A timeline set detailing when the borrower is to achieve each level, including the target observation date(s)/period(s).
The SPTs must remain relevant (so long as they apply) and ambitious throughout the life of the loan.
Target verification process
Borrowers should, on agreed reporting dates but at least once per annum, during the life of the loan, provide Piraeus Bank with:
- up-to-date information sufficient to monitor the performance of the KPIs and to determine that the SPTs remain ambitious and relevant to the borrower’s business; and/or
- a sustainability confirmation statement with verification report attached, outlining the performance against the SPTs for the relevant year and including details of any underlying methodology of SPT calculations and/or assumptions, emphasizing any departure from the approved ones or confirming that there has been no change.