AA huge photovoltaic system shines on the factory roof, collects solar energy, which flows directly into the bottling plants and the cube-shaped storage facility. Heat pumps regulate the temperature in the hall, which has been trimmed to the KfW 40 energy efficiency standard. Electric trucks hum across the factory premises and employees are also encouraged to come to work in e-cars or e-bikes instead of with combustion engines. Charging stations on the company premises ensure that the batteries are always fully charged.
The new production facility of the cosmetics manufacturer Babor in Eschweiler near Aachen is more than just a building for entrepreneur Isabel Bonacker. We have invested in the future here.” From June of this year, Babor will be producing here according to the highest sustainability standards, wanting to be completely energy self-sufficient from 2030 and using almost no fossil fuels.
The only exception is the special machines for ampoule production, for which hydrogen is to be used in the future. Babor is also planning a CO2 capture system for the coming years.
The new factory cost 60 million euros; part of the money came from Deutsche Bank – in the form of an ESG-linked loan. The level of interest is linked to the company’s climate targets: “We have committed to reducing our CO2 emissions by 50 percent by 2025 compared to 2019. If we can do that, we’ll pay a little nicer interest,” explains Bonacker.
Life cycle of the product range
If it doesn’t succeed, Babor donates to a sustainability NGO. Your sustainability team is currently reviewing the life cycle of the entire product range. By 2025, packaging should be made of recyclable material, and cosmetic formulations should be developed to a high, clean standard.
“The motivation for the change towards more sustainability must come from within the company itself, as must the will to innovate,” says Marcus Thiel, Head of Sustainable Corporate Finance at the German bank, who also advised cosmetics manufacturer Babor on the financing of the new factory. Companies have to develop strategies for the green transformation themselves, collect the data required for reporting – Thiel then bases the financing on this.
“As a bank, we are primarily active here in an advisory capacity, explaining which key figures are important, which accompanying measures can be useful and where entrepreneurs can get help.” It is easier for corporations and large medium-sized companies to collect extensive sustainability data. Many of them are already obliged to draw up corresponding reports.
Due to the Corporate Sustainability Reporting Directive (CSRD), however, from the 2024 financial year smaller medium-sized companies must also provide detailed information on various sustainability aspects. Companies with more than 250 employees, more than 40 million euros in annual sales and more than 20 million euros in total assets are affected.
Monitoring und Reporting
For Thiel, this regulation primarily creates transparency. “Companies have to deal with the impact of their business activities on the environment and climate, but also on social aspects.”
But the banks themselves are also obliged to identify their customers’ sustainability risks and integrate them into the financing process, according to Torsten Jäger, Head of Sustainable Finance at the Association of German Banks. “In the future, credit institutions will increasingly ask themselves what effects climate change, for example, but also the regulatory changes to combat it, will have on the business activities of their corporate customers – and how they can support companies in the transformation towards more sustainability.”
The banking supervisory authority expects institutions to integrate ESG risks into their risk management. “Together with the banks’ own sustainability goals and the company’s sustainability assessment, this can also affect credit conditions. ESG criteria are becoming an integral part of the lending business and will play an increasingly important role in lending.” If a company can fundamentally position itself more sustainably, interest rate reductions beckon. According to Jäger, this resulted in costs for monitoring and reporting. Reasons for saving interest alone should therefore not be decisive.
And yet: The demand for green and ESG-linked financing is increasing, with “E” standing for ecological, “S” for social, “G” for governance, i.e. good corporate governance. Even if climate and environmental protection or emission reduction and energy efficiency are currently in the foreground, social issues such as diversity or occupational health and safety are also playing an increasingly important role. In 2021, German companies had raised around 94 billion euros through green financing, according to a study by the management consultancy McKinsey out. A year earlier it was only 52 billion euros.
implement measures
If not very specific sustainable projects are financed, the financing conditions are linked to the achievement of ambitious, previously defined sustainability goals that are linked to performance indicators (KPIs). However, these must fit the industry and overall business of the company and be integrated into the sustainability strategy.
“Everything depends on the data,” says Marco Göck, head of the Business Development department in corporate customer business at LBBW and responsible for sustainability there. Only those who know where they stand can really effectively implement measures, measure their impact and drive the transformation forward.
This is also why the focus of many projects is currently on reducing CO2 emissions. “Companies can measure and calculate their CO2 emissions and thus have a concrete, tangible value with which they can work and against which they can measure the success of their efforts.” production facilities or human rights violations in supply chains.
But how do you summarize efforts to improve these issues in measurable, valid data? A question that also keeps Göck busy. “A very clear, comprehensible and transparent methodology is required here: What data is available? What data is still needed? How can companies collect this data?”
strategic dialogue
LBBW is therefore currently rolling out the ESG dashboard, which enables corporate customers to determine their own position in the area of sustainability and to collect and transmit relevant data as part of the strategic dialogue.”
One thing is clear: companies that close their minds to sustainable transformation will face ever greater challenges in the future – not only because of regulatory requirements. ESG ratings are becoming part of guarantees, financing, equity investments and promissory notes. “But there will be solutions for companies that cannot transform themselves because of their line of business,” believes Göck and at the same time warns against panic.
Despite all the uncertainties among some medium-sized companies, there are certainly exciting opportunities for innovations or new business models. “Most companies want to be more sustainable – not just because of political regulations or bank financing requirements. It is also employees and junior staff, customers and business partners who are demanding such a change,” Göck knows.
And Marcus Thiel from Deutsche Bank also observed: “The motivation for change is there; most companies want to improve and put some effort into sustainable transformation. The banks can support them in this.”