Sustainability regulations slow down lending to companies

Sustainability regulations are slowing down lending. This is the finding of a survey among the board members of cooperative banks. The German Construction Industry Association (ZDB) is therefore calling for relief measures for medium-sized construction companies.

According to a recent survey, cooperative banks (Volksbanken and Raiffeisenbanken) have granted more loans to medium-sized businesses. The survey indicates a four percent increase last year. However, the rapidly growing sustainability regulations are having an impact, according to the Association of German Cooperative Banks. Volksbanken and Raiffeisenbanken in the cooperative association Sustainability is increasingly seen as a brake on lending to companies. Many bank executives are skeptical about the availability of sustainability data from their corporate clients. However, banks will need such data more than ever with the upcoming amendment to the Banking Act to take sustainability risks into account.

"Banks already have to consider sustainability risks in their lending business. This could lead to companies that don't report accordingly or collect such data potentially receiving less favorable terms or even a loan rejection, even though they might not actually be so unsustainable," explains Michael Hoeck, Chairman of the Board of the German Cooperative Association. This could put small and medium-sized enterprises (SMEs) in Germany at a competitive disadvantage.

Only a few businesses are well prepared

In the survey, bank executives categorized their corporate clients into four groups based on the availability of sustainability data: pioneers, pragmatists, starters, and those overwhelmed. The largest group, 46 percent, falls into the overwhelmed category. This means they struggle to meet the requirements or have barely addressed the issue. Twenty-eight percent were classified as starters. They are at the beginning and have identified some requirements but have not yet resolved them. Twenty-one percent were categorized as pragmatists, who are well on their way to meeting the requirements. Only five percent are considered pioneers, who are optimally prepared.

The survey results confirm, according to Central Association of the German Construction Industry (ZDB) a development that has been observed in the construction industry for some time. "The sustainable transformation is currently failing not due to a lack of commitment from companies, but due to a highly data- and formal-driven regulation that particularly overwhelms medium-sized businesses. If sustainability requirements primarily operate through ever more data points and proofs, investments are hampered – even to the point of loan approvals. This puts medium-sized construction companies under pressure, even though they have been practically implementing sustainability for years," says ZDB Managing Director Felix Pakleppa.

Assessing sustainability with a focus on impact

The construction industry's small and medium-sized enterprises (SMEs) are continuously investing in resource efficiency, material savings, circular economy approaches, and regional value creation. "These companies aren't seeking less sustainability, but rather less bureaucracy and more market-oriented solutions." Current regulations are predominantly geared towards corporate structures. SMEs lack the resources for complex reporting systems – their contribution to sustainable transformation is practical and measurable. Therefore, sustainability should be assessed more strongly based on impact and output, demands the German Construction Industry Federation (ZDB).

Measurable effects such as resource conservation, regional material cycles, and the substitution of primary raw materials are crucial – not the formal completeness of data sets. Furthermore, greater legal certainty is needed, for example, regarding the recognition of recycled materials as products. This reduces risks without creating additional bureaucracy. Pakleppa: "Sustainable investments must be facilitated. Financing must not become an obstacle, but rather act as a lever – with clear, reliable criteria and planning security for small and medium-sized enterprises."DHB now also digital!Simply click here and register for the digital German Crafts Journal (DHB)!