ESG: From Buzzword to Borrowing Condition

Five years ago, “ESG” was largely a corporate talking point. In 2025, it has become a fundamental driver of lending appetite. Development projects across the UK are now routinely assessed not only for profitability and risk but also for their environmental, social and governance credentials.

For developers, this represents both a challenge and an opportunity. Projects that meet ESG obligations attract stronger lender appetite, better terms, and in some cases preferential pricing. Projects that ignore ESG often face reduced leverage—or worse, outright rejection.

Environmental Standards and Lender Caution

The environmental component is the most visible. Lenders are increasingly reluctant to finance schemes that fall short on sustainability. This includes:

• Energy efficiency – New builds must demonstrate compliance with the latest EPC standards. Subpar ratings can result in higher borrowing costs or refusals.
• Renewables integration – Solar panels, air-source heat pumps, and green infrastructure are no longer “add-ons” but expectations in many regions.
• Biodiversity net gain – Developers must demonstrate ecological improvements, particularly for larger sites.
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As we discussed in our blog on green mortgages in 2025, lenders increasingly tie finance terms to sustainability. The same logic now applies in the development finance space.

Social Impact: Beyond the Balance Sheet

The “S” in ESG is also gaining weight. Local authorities and lenders alike are paying closer attention to the social impact of projects. Affordable housing provisions, community spaces, and alignment with local planning priorities can significantly affect funding negotiations.

For example, a residential developer who integrates affordable units and community amenities is more likely to secure cooperation from local councils and more favourable terms from lenders. Conversely, purely commercial schemes with little social contribution may face longer negotiations and higher capital costs.

Governance: The Often-Overlooked Factor

Governance is the quiet but crucial part of ESG. Lenders want assurance that borrowers are compliant, transparent and well-structured. For development finance, this means:

• Clear company structures with transparent ownership.
• Strong track records with evidence of past delivery.
• Proper risk management, including insurance, warranties and financial reporting.

Governance failures can derail deals as quickly as environmental shortfalls. In 2025, lenders are unforgiving of opaque structures or weak management.

ESG as a Condition of Lending

What has changed most in 2025 is that ESG is no longer optional. Lenders now routinely insert ESG obligations into term sheets and facility agreements. These may include:

• Minimum EPC standards on completion.
• Commitments to specific sustainable building practices.
• Reporting obligations to demonstrate compliance during construction.

Failure to meet these conditions can trigger defaults or prevent drawdowns. Developers must plan for ESG from the outset, not retrofit it later.

The Cost of Compliance

ESG compliance carries costs. Renewable installations, eco-materials and community provisions all increase upfront spending. But the financial logic is compelling: projects that ignore ESG not only face higher borrowing costs but also lower long-term values, as non-compliant assets struggle to sell or refinance.

We explored similar risks in our article on unlocking property value through planning gain. Just as planning gain creates upside, ESG compliance protects long-term value.

Insurance as Part of ESG Strategy

Lenders also increasingly expect insurance to support ESG risk management. This includes environmental liability cover, construction warranties that guarantee green features, and business protection for developers managing complex obligations.

At Willow, we integrate insurance alongside development finance. By packaging finance with environmental and business protection, we reassure lenders that ESG commitments are not only aspirational but also enforceable.

Case Study: ESG as a Dealmaker

Willow recently advised a developer converting a redundant industrial site into residential apartments. The scheme incorporated green roofs, EV charging points and a community garden. The upfront costs were significant, but the ESG profile transformed lender appetite.

Mainstream lenders offered cautious leverage, but a private bank—attracted by the ESG credentials—provided higher LTV at lower pricing. We structured the facility, integrated warranties for green installations, and arranged life cover for the principals. The project completed with stronger terms than would have been possible without ESG alignment.

Risks of Neglecting ESG

The risks of ignoring ESG in 2025 are stark:

• Reduced leverage – Lenders simply won’t stretch on non-compliant projects.
• Exit challenges – Non-ESG assets are harder to sell and refinance.
• Regulatory penalties – Non-compliance with EPC or biodiversity standards can result in fines or delays.

Developers who treat ESG as an afterthought pay twice: once in higher financing costs, and again in reduced asset values.

Why 2025 Is a Turning Point

The shift in 2025 is not just about regulation—it is about market demand. Buyers, tenants and investors all increasingly prefer ESG-compliant properties. Lenders are responding by directing capital towards sustainable projects.

This creates a bifurcated market: ESG-aligned developments attract stronger finance and long-term demand, while non-compliant schemes face shrinking appetite.

How Willow Private Finance Helps

At Willow, we help developers navigate the intersection of ESG and finance. We identify which lenders favour ESG projects, prepare documentation to evidence compliance, and structure finance that incorporates obligations from the outset.

We also integrate insurance solutions—environmental liability, warranties, business protection—that reduce risk and strengthen lender confidence. Our goal is to ensure that ESG is not a barrier but an enabler of finance.

For developers in 2025, ESG is not just about compliance—it is about competitiveness. Willow ensures you are positioned on the winning side.

📞 Want Help Navigating Today’s Market?

Book a free strategy call with one of our development finance specialists.

We’ll help you secure funding that integrates ESG obligations—and protection that makes compliance sustainable.