ESG and Interest Rates: The Financing Impacts Few Are Talking About

When business owners think about ESG, they often picture environmental audits, employee programs, and compliance paperwork. But there’s one area ESG affects that’s flying under the radar: your interest rate.

As more financial institutions adopt the Principles for Responsible Investment (PRI), privately-held businesses are beginning to experience a shift in how creditworthiness is evaluated. ESG compliance—once an optional public relations move—now quietly influences access to capital.

Here’s how it works.

Many banks and investment firms now use ESG rating systems to assess the long-term risk of borrowers. While there’s no universal scoring framework, common factors include environmental impact, employee practices, supply chain transparency, and governance controls. A higher ESG score may signal a lower credit risk to lenders—leading to more favorable loan terms. Conversely, a poor or absent ESG profile can translate to higher borrowing costs.

In our valuation and consulting work, we’ve seen this dynamic play out in real-time. A business that proactively implements ESG principles and communicates them clearly often qualifies for better rates—not just because of perception, but because the financial institution can justify lower risk exposure in its underwriting model.

It’s important to note: this isn’t just about ethics or optics. From the lender’s perspective, ESG-compliant companies are more resilient. They may face fewer lawsuits, manage regulatory changes more effectively, and avoid reputational risks that could undermine revenue. That makes them better bets for long-term repayment.

On the other hand, a business that delays ESG adoption may find itself penalized—not through regulation, but through capital markets. As lenders build ESG into their models, financing becomes more expensive for companies that lag behind.

What does this mean for small business owners? It’s time to treat ESG as a financial lever, not just a philosophical one. The companies that understand and strategically implement ESG may not only improve their impact—but also reduce their cost of capital.

If you're preparing for a major financing event—like growth capital, equipment loans, or refinancing—consider including ESG in your next boardroom conversation. The interest savings could surprise you.