Business Insights: European Lenders Are Changing How They Apply Sustainability Criteria

Eight in 10 European lenders say sustainability criteria influence how they make individual lending decisions, and the ways they apply those criteria are becoming more structured.

In CBRE’s European Lender Intentions Survey 2026, two-thirds of lenders (66%) said they will not lend against an asset unless it meets sustainability criteria or comes with a business plan to improve sustainability. What stands out this year is the way lenders are acting on that, incorporating sustainability into how they price loans and manage them over time.

With 72% of lenders planning to increase origination this year, most still attach sustainability conditions as they put that capital to work, reflecting those conditions in the terms of the deal rather than treating them as a simple yes or no at the outset.

Regulation is part of the reason. The European Central Bank has embedded climate and environmental risk into how it supervises banks, including stress testing to gauge their exposure (ECB, January 2026). To meet those requirements, bank lenders are assessing these risk factors within their existing loan book and at the point of origination.

For non-bank lenders, there is a similar need to meet their investors’ own priorities and targets on sustainability, and to minimise capital risk from discounted value, falling net operating income and similar effects over the loan period that reduce the potential of getting their money back. This is principally a focus on physical and transition risk, though when it comes to strategic objectives other metrics may also come into play, such as green building certifications.

The rise of improvement plans and penalties

The clearest change is in how lenders handle assets that fall short. While fewer now refuse such an asset outright, more now ask for an improvement plan, required by 48% this year against 45% a year ago, and hold borrowers to it far more closely. Among those requiring improvement plans, more than half monitor progress quarterly.Most also attach consequences while the loan is live:penalty clauses for non-compliance feature in 66% of these loans (up from 62% a year ago) and incentives for meeting targets are included 61% of the time (up from 51%). About half of lenders combine both tactics. This shift toward managing sustainability actively over the life of the loan is the strongest signal in the data.

Financing costs more for non-sustainable assets

Among lenders, 25% apply a margin increase to less sustainable assets, up from 22% a year ago, and the penalty has increased: 32% now add more than 20 basis points, up from 19% in 2025. For compliant assets, 33% of lenders offer a margin stepdown, with more than half of that group applying a stepdown of 5 to 10 basis points. The margin increases lenders impose on weaker assets remain larger in magnitude than the stepdowns they offer for stronger ones.

Broad rewards are less prominent than a year ago. In 2026, 27% pointed to more favourable loan terms such as loan-to-value or interest coverage ratios for compliant assets, down from 42%, though part of that fall may reflect the new survey answer choice discussed in the footnote.

This likely reflects sustainability becoming an market expectation, so there is less reward for meeting it and a sharper penalty for falling short.

Banks apply criteria more consistently than non-banks

Banks apply sustainability criteria more consistently than non-bank lenders. In the 2026 survey, 87% of banks said sustainability criteria influence their individual lending decisions, compared with 71% of non-banks. Banks are also readier to reward compliant assets, with 36% offering more favourable loan terms against 16% of non-banks.

Banks use margin adjustments more readily as well, with half of bank respondents doing so compared with one-third of non-bank lenders. Where they adjust, banks tend to offer larger stepdowns and report a higher degree of certainty in their approach. These patterns reflect the inclusion of environmental and climate risk considerations into a highly regulated and monitored sector.

Conclusion

Sustainability remains firmly embedded in European lending decisions. What has changed is how lenders apply it. Fewer rule an asset out from the start, while the tools continue to develop for pricing improvement plans, regular monitoring, penalty and incentive clauses, and clearer margin differences. In practice, sustainability performance is becoming a downside risk as much as a point of differentiation, with lenders more inclined to penalise shortcomings than to materially reward compliance.