SMEs: Sustainability as a silent factor in financing and valuation
Current KfW findings
In credit negotiations with small and medium-sized enterprises, sustainability aspects have not yet played a comprehensive role. However, recent analyses from the KfW SME Panel indicate a clear trend: for larger SMEs and in climate-relevant industries, the topic is becoming increasingly important. Not in the form of a formal reporting obligation, but as part of how banks assess risk and structure financing conditions.
We are observing the same development in our day-to-day advisory work. In discussions with clients from the SME segment, sustainability topics are appearing more frequently. Typically, this is not driven by regulatory requirements, but by their growing relevance in the context of financing discussions, investment decisions, or strategic considerations.
Financing for SMEs: ESG data as part of credit logic
Even though sustainability is currently addressed explicitly in only around 15% of credit negotiations, a different dynamic can be seen among larger companies. Banks are under increasing pressure to systematically incorporate ESG risks into their lending decisions. To do so, they require reliable information on their clients’ business models, investment plans, and transformation pathways.
In our advisory work, we observe that banks are increasingly raising these topics even where no formal reporting obligation exists. Our clients report concrete questions during the credit process, for example regarding energy consumption, planned investments, or the long-term positioning of their business model.
What matters here is less a fully comprehensive sustainability report from a regulatory perspective, and more the ability to present key aspects in a structured and comprehensible way. Companies that can clearly explain how risks are managed and which developments are planned improve their position in financing discussions – particularly with regard to maturities, covenants, and pricing conditions.
Sustainability as an implicit valuation factor
In valuation practice, sustainability is rarely a standalone parameter. Its relevance typically unfolds through indirect effects, for example via:
- adjustments in business planning,
- investment requirements driven by regulatory or market developments,
- and changing risk assessments when deriving capitalisation rates.
In discussions around transactions, succession, or strategic repositioning, it is increasingly evident that questions of long-term viability are gaining importance. Sustainability aspects do not enter the equation as an end in themselves, but as part of the overall economic assessment.
CFO Advisory: From compliance thinking to a structured decision basis
The KfW study results confirm what we see in practice: many SMEs do not yet have a structured approach to sustainability data. Smaller companies in particular often perceive the effort as difficult to grasp and question its practical relevance as long as no clear legal obligation exists.
At the same time, interest in pragmatic solutions is growing. In our discussions with CFOs and management teams, the focus is therefore less on producing extensive reports and more on identifying which information is actually needed – internally for management purposes and externally for assessment by banks or other stakeholders.
This highlights the need for workable structures: identifying material topics along the business model, deriving appropriate metrics, and integrating them into existing planning and decision-making processes.
For our advisory work, this means not treating sustainability as an isolated specialist topic, but as an integral part of a well-founded economic assessment. The objective is to support our clients in structuring relevant aspects, presenting them transparently, and embedding them into existing decision-making processes.
We would be pleased to discuss with you the role sustainability aspects play in your specific financing, valuation, or planning context – regardless of formal reporting obligations.