GERMANY Law and Practice Contributed by: Michael Josenhans, Anouschka Zagorski and Christina Banz, Freshfields
in the European loan market, particularly in syndicated loans in the form of sustainability-linked loans (SLLs). The practical importance of SLLs lies in the field of investment-grade lending and in the manufacturing sector. Next to SLLs, sustainable lending can be undertaken through green loans and social loans. As the names suggest, those need to be tailored to financing an eco- logical or social target. They are mostly used in the relevant industry for the financing of environmental projects. However, a syndicated social loan transac- tion has yet to close in Germany. SLLs, on the other hand, do not need to be used to finance sustainable projects, and can be used for general corporate financing. Companies and lenders typically agree on bespoke ESG performance indica- tors that are assessed annually through the delivery of company-produced or objective third-party reports. However, ESG financing is currently experiencing a sharp decline: in the first quarter of 2025, the issu- ance volume of ESG bonds and loans in Europe was EUR169 billion, 27% lower than in the previous year – the lowest level since 2022. This is particularly evident in SLLs and green loans, whose volumes have almost halved year-on-year. A similar trend can be seen in Germany, with a sharp decline in new SLL business. Several factors are contributing to this development: on the one hand, administrative costs and the impact on companies and banks are increasing, particularly as a result of new disclosure and audit requirements (CSRD, SFDR 2.0). At the same time, SLLs offer only limited financial incentives for some borrowers and do not count towards lenders’ green asset ratios. Secondly, ESG initiatives are becoming increasingly controversial in political debates, particularly in the USA, where large financial institutions and companies are scaling back their climate and diversity targets or communicating their ESG strategies less openly (“greenhushing”) due to current political pressure. In Europe, too, the debate about reducing bureaucracy and growing regulatory pressure is causing uncer- tainty.
While individual sustainable projects can still be financed through green or social loans (although the latter has not yet established itself in the German syn - dication market), it remains to be seen how the regu- latory and political environment for ESG loan prod- ucts will develop and how stringent transparency and reporting requirements will be for companies in the future. 2. Authorisation 2.1 Providing Financing to a Company In Germany, the granting of loans is subject to a banking licence. Banking licences are granted by the Federal Financial Supervisory Authority ( Bundesan- stalt für Finanzdienstleistungsaufsicht ) and, if they are combined with a deposit-taking licence, by the ECB. The licence application is a lengthy and burdensome procedure. The regulatory environment generally does not allow non-banks (institutions that do not hold a banking licence) to act as lenders. However, some narrow exemptions apply. As such, non-banks may co-oper- ate with credit institutions in order to be involved in the loan business (the “fronting-bank model” or the “white label model”) or in certain circumstances may rely on the reverse-solicitation exemption (see 3.1 Restric- tions on Foreign Lenders Providing Loans ). Furthermore, no licence is required for the mere acqui- sition and holding of loan claims, though there is a very fine line between mere “holding” and other actions in respect of those claims (eg, extensions) which again lead to a licence requirement. In addition, as described in 1.1 The Regulatory Envi- ronment and Economic Background , German invest - ment laws were amended to allow certain EU-regu- lated credit funds to grant loans under very specific circumstances, even if they do not hold a banking licence.
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