Finastra has launched its ESG Service, a cloud-native SaaS product that simplifies lending for sustainable practices.

The ESG Service is an open and scalable platform that makes it easier to integrate sustainability performance goal criteria into ESG pricing for Finastra Loan IQ and other back-office systems on the market.

In addition, with the help of SaaS-based services, banks will be able to quickly roll out a highly flexible and comprehensive sustainability-linked financing solution to all cooperating clients.

Complex pricing systems with several moving pieces are used in sustainability-linked loans, and they must be compared to the sustainability goals stated in the credit agreement. This can limit bank resources, constrict their ability to offer ESG products, and increase the risks involved with manual processes.

Banks can quickly expand their lending portfolios for sustainability-linked loans at scale while lowering the risks associated with manual processes by using an automated solution to manage the KPIs and ESG pricing modifications.

Finastra is a global provider of financial software applications and markets that introduced, the open platform for innovation, in 2017.

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It serves institutions of all sizes, offering solutions and services in Lending, Payments, Treasury & Capital Markets, and Universal Banking (Retail, Digital, and Commercial Banking) to help banks support direct banking relationships while also expanding through indirect channels such as embedded finance and Banking as a Service.

In recent years, transaction volumes for loans with sustainability-related clauses have significantly expanded as part of a larger movement toward financing with an ESG focus.

Simon Thorogood, senior director, corporate and syndicated lending, Finastra says: “A shift in the mindset of corporate stakeholders, investors, customers and employees is pushing banks to adopt a more sustainable business model and this is driving demand for sustainability-linked loans.”

Following a record $1.6trn in ESG finance in 2021, sustainable loan volumes continued to increase in 2022 despite a difficult macroeconomic climate that witnessed  a declining capital market activity across asset classes.

“This creates a huge opportunity for banks to grow revenues and become leaders in the space, with borrowers looking for banks to help shepherd them through their ESG journey. Finastra’s ESG Service offers banks a well-defined, transparent and automated solution for managing ESG performance and the associated pricing adjustments, creating a more seamless experience for clients,” Thorogood adds.

“Furthermore, with complex and constantly-evolving ESG regulations on the horizon, having a centralised store of data will greatly aid banks in being able to efficiently and accurately meet their regulatory obligations in terms of meeting the relevant disclosure requirements.”

ESG Service is a specialised programme designed to assist with loan pricing related to sustainability. Because it is a cloud-native SaaS solution that uses open APIs, it provides a high degree of flexibility in handling various deal structures as well as extensibility for the incorporation of new capabilities and partner applications.

Additionally, it offers the flexibility to accommodate various transaction processing systems that call for adjustment to loan price, as well as the option to incorporate other pricing components beyond interest and recurring fees.

By supplying an automated means for tracking ESG performance and the related margin changes – which can be consumed directly in the relevant servicing systems via APIs – the service will deliver significant benefits to users across the middle and back office, including credit managers, borrowers, and sustainability coordinators.