Finastra has announced the availability of its ESG Service, a cloud-native SaaS solution that streamlines sustainability-linked lending.
ESG Service, which is open and scalable, enables the integration of sustainability performance objective criteria into ESG pricing for both Finastra Loan IQ and other market back-office systems.
ESG Service is a program developed to facilitate loan pricing based on sustainability. Being a cloud-native SaaS solution that leverages open APIs, it offers a high degree of flexibility to handle a wide range of transaction structures and extensibility for the addition of new functions and partner apps. It also offers the capacity to accommodate different transaction processing systems that require loan price modifications, as well as the flexibility to incorporate other pricing components beyond interest and recurring fees.
The service will provide significant benefits to users across the middle and back office, including credit managers, borrowers, and sustainability coordinators, by providing an automated means of tracking ESG performance and related margin changes, which can be consumed directly in the relevant servicing systems via APIs.
Sustainability-linked loans include complicated pricing systems with various moving pieces that must be managed against the credit agreement’s sustainability standards. This can overcrowd resources, limit banks’ ESG product offerings, and introduce risks associated with manual processes. Having an automated system for managing the KPIs and ESG price modifications of sustainability-linked loans allows banks to easily build these lending portfolios at scale while minimising the risks associated with manual operations.
Transaction volumes for sustainability-linked loans have grown significantly in recent years as part of a larger drive toward ESG-focused financing. With a record amount of ESG finance totalling USD 1.6 trillion in 2021, sustainable loan levels maintained steady in 2022 amid a tough macroeconomic climate with limited capital market activity across asset classes.
In contrast to green loans, which compel borrowers to use loan proceeds for a specific green project, sustainability-linked loans are loan-purpose-neutral. It allows borrowers who are not in traditional ‘green’ businesses to engage in sustainable financing.
Finastra’s latest development
Finastra has had a productive year thus far. Finastra ALM IQ, a risk management system accessible for banks beginning in March 2023, was announced in February 2023. This system comes with built-in compliance features, a powerful forecasting engine, and a configurable reporting structure. It strives to fulfil the specific needs of small and medium-sized banks, such as community banks in the US.
Subsequently, there was talk of selling its banking unit for as much as USD 7 billion. According to the rumour, the firm is in the process of separating the universal banking sector, which supplies software to banks and credit unions to perform basic operations, as it prepares to begin a selling process in the coming weeks.
Ultimately, it collaborated with Integro Technologies to provide clients with digitalisation and exposure risk products. With this agreement, Finastra will provide its Trade Innovation solutions to customers, as well as Integro’s SmartLender Trade Limits service.