Title page 1

Contents 6

Acknowledgements 5

Executive summary 8

1. Introduction 10

2. Why SME sustainable finance remains difficult 12

Opacity and information asymmetry problems 12

Fragmented reporting ecosystems 12

Digital capability gaps in SMEs 13

High transaction costs for banks and the challenge of scalability 13

3. How AI and digital tools can intervene 15

SME side: sustainability data generation and pre-financing 16

Financial institution front office: client interaction and origination 18

Financial institution middle office: credit scoring, ESG risk analytics and compliance 21

Financial institution back office: monitoring, reporting and portfolio management 23

4. Policy considerations 25

Building interoperable SME sustainability data infrastructure 25

Developing verification and trust layers around SME sustainability data 26

Incentivising SME adoption of sustainability reporting through financing advantages, non-financial support and operational simplification 26

Ensuring accountability and appropriate safeguards for the use of AI in SME sustainable finance 27

5. Conclusions 29

References 30

Notes 33

Table 1. Key barriers to SME sustainable finance 14

Table 2. Practical uses of digital tools and AI for financial institutions 16

Boxes 7

Box 1. Digital tools for SME sustainability data generation 17

Box 2. Front office digitalisation for SME sustainability finance 19

Box 3. An overview of traditional AI, Generative AI and Agentic AI 21

Box 4. Middle office innovations in SME sustainability financing 22

Box 5. Back office automation for SME sustainability financing 24