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Category: Expertise strategy

The rise of sustainability-linked loans

The drive for sustainability remains a key focus for global businesses, with 81% now incorporating ESG metrics into executive incentive plans, according to a 2024 report analyzing over 1,500 companies. In this article, Jesper Diget, CPO at emagine, explores how linking sustainability initiatives to the bottom line is reshaping business strategies.

The drive to achieve greater sustainability among global businesses is a permanent news fixture, with both sides of the story covered; how sustainability goals are being achieved and how organisations are failing in this space. It is not a topic that is going to disappear any time soon.

A report published in 2024 revealed that 81% of global companies include ESG metrics in their executive incentive plans, and that the use of climate metrics has significantly increased, based on research of more than 1,500 companies.

Raising the stakes, a growing number of business leaders are linking sustainability initiatives to the bottom line.

Global Report on ESG Metrics in Incentive Plans 2023

 

What are sustainability-linked loans?

Sustainability-linked loans (SLLs) aim to facilitate the drive toward better performance across the credit market. They offer an appealing route to financing because of the backing of economically and environmentally sound principles, to the tune of €129Bn globally in Q3 2024 alone.

Green & Sustainability-Linked Loan Newsletter by BBVA

Jeper Diget standing in the doorway to his emagine office

The foundation of the SLL product lies in incentivising the borrower to improve ESG performance, based on a range of predetermined targets. Whether environmental- and/or social- and/or governance-focused, the economic characteristics such as the level of interest rate, for example, will vary according to how these targets are met.

Regularly monitored and externally verified KPIs provide a framework against which borrowers can be closely reviewed, and exceeding these will invariably result in a lower interest rate of repayment, supporting the borrower in improving its sustainability performance. 

 

A SLL in practice 

In 2021, emagine entered into a sustainability-linked loan (SLL) with our banking partner. 

The £10+ million loan is not purely about getting a discount on financing; emagine took a significant step in reinforcing its commitment to sustainability by taking it out. Indeed, doing so marked the beginning of our new ESG strategy, with social impact and diversity key among the metrics. In securing the loan, we committed to achieving two of the UN's 17 Sustainable Development Goals, focusing on the people behind the organisation through Goal 5: Gender Equality, and Goal 8: Decent Work and Economic Growth. 


 

  A report published in 2024 revealed that 81% of global companies include ESG metrics in their executive incentive plans, and that the use of climate metrics has significantly increased, based on research of more than 1,500 companies.

 


The goals need to be ambitious, and the loan has helped us focus on and plan improvements in these areas. We intend to reduce employee attrition and increase the number of female leaders in the organisation. Specifically, over the seven-year loan period, we aim to reduce the percentage of resignations by 7% and grow the number of female leaders by 6%. 

Since the loan's inception, we have been held to rigorously high standards as we work hard to meet KPIs linked to the agreement, particularly as we have publicly committed to sustainability and ESG. After all, the firm’s reputation is at stake. 

 

Is the outcome worth it? 

We are successfully – and consistently – meeting all KPIs linked to the agreement. The loans have primarily gone towards funding initiatives to meet our commitments to social impact metrics and diversity objectives, for example starting a Leadership Program based on feedback from emagineers (our great employees). We have had almost 90 leaders through this program so far. We also started a pioneer program for our internal talents and a mentoring program to ensure we give our colleagues the best opportunity for growth and development and, of course, to keep them at emagine. 

These activities have formed a vital part of emagine’s achievement of the EcoVadis Platinum medal at Group level in 2024, having achieved the Silver rating the year before. The loan has also facilitated our ambitious expansion plans and bolstered our strategic global growth journey. Over the last three years, it has enabled us to acquire six firms in Europe, the UAE, and India, expanding our offering and enhancing our technology services. 

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