KPI selection in Finnish sustainability-linked loans and the impact of the CSRD

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School of Business | Master's thesis

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Date

2025-10-31

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Mcode

Degree programme

Master's Programme in Accounting
Laskentatoimen maisteriohjelma

Language

en

Pages

89

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Abstract

The European Union has actively developed its policies on sustainable finance to better integrate sustainability issues into investment decision-making. The recent Corporate Sustainability Reporting Directive (CSRD) is part of this development, which requires companies in its scope to report on a wide range of sustainability topics. Sustainability-linked loans (SLLs) are sustainable finance instruments that have seen rapid growth since their inception in 2017. They include sustainability-related key performance indicators (KPIs), against which a borrower’s sustainability performance is measured. Borrowers can benefit from lower loan margins when sustainability targets are reached, and these targets are set against the KPIs. This thesis examines how the KPIs are selected for SLLs in Finland and how the CSRD has begun to influence this selection. Prior research has primarily focused on loan characteristics by conducting statistical analysis, mainly using US or global datasets. Furthermore, the SLLs in these studies were issued before the introduction of the CSRD. A qualitative multiple case method is used in this study, based on interviews with representatives from banks and corporate borrowers involved in Finnish SLLs. The interview data is analysed and interpreted in relation to earlier literature on sustainable finance, SLLs, and corporate sustainability reporting. The findings show that KPI selection in Finnish SLLs is a collaborative and company-specific process, based on industry guidelines, where the lender and borrower work together to identify indicators that align with the borrower’s sustainability strategy. It includes discussions on the borrower’s material sustainability topics and how these could be translated into KPIs, which the bank evaluates against criteria of materiality, credibility, and ambition. Lenders often advise borrowers in defining the metrics and benchmark them against their past performance, peers, and science-based targets. In practice, the majority of selected KPIs are environmental, highlighting the central role of climate and energy-related targets in the loan structures. The CSRD has started to impact KPI selection by improving the quality and comparability of sustainability information and by making the double materiality assessment mandatory. As a result, borrowers have better data and understanding of their material sustainability topics. Verified CSRD data under limited assurance can also be used for monitoring KPI performance. However, the directive’s impact has been limited for borrowers with already established sustainability strategies. Overall, the CSRD has improved credible KPI selection by linking sustainability reporting with SLL structuring, though its impact is still limited and evolving.

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Supervisor

Niemi, Lasse

Keywords

sustainable finance, corporate sustainability reporting, sustainability-linked loans, SLLs, KPIs, CSRD

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https://urn.fi/URN:NBN:fi:aalto-202512099006

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[gradu] Kauppakorkeakoulu / BIZ