Private Finance ESG Monthly: May 2022

Breaking down trending ESG trades & themes to help those within Private Finance get ahead of the latest issues shaping the market.

ESG Syndicated Lending Market

  • Sustainable lending volumes dropped back from the year’s high in March ($84.9bn) to $47.6bn in April.
  • The majority of sustainable lending year to date (YTD) has been directed towards the: Utility & Energy (35.5%); Machinery (30.3%); and Agribusiness (28.4%) sectors.
  • Notable transactions for April include Syngenta ($4.5bn sustainability-linked loan); Alphabet ($4.0bn sustainability-linked loan); and Solar Partners XI ($1.3bn green loan).

Global ESG Syndicated Lending, April 2022 YTD ($ billion)

Term: Sustainability-Linked Loan (SLL). Source: Dealogic, 27/05/22

Global ESG Syndicated Lending by Sector, April 2022 YTD (% of Total Syndicated Lending)

Source: Dealogic, 27/05/22

ESG Deal Activity

Marcegaglia signed a €130m sustainability-linked securitisation transaction – the first such deal in the Italian steel industry. The deal modifies an existing trade receivables securitisation (TRS) agreement between Marcegaglia and CA-CIB where the addition of climate-related key performance indicators (KPIs) will determine the price paid by CA-CIB for the trade receivables.

Lombard Odier launched a new climate transition-focussed Sustainable Private Credit Strategy, with the Environment Agency Pension Fund (EAPF) joining as a cornerstone investor. The strategy seeks to provide primarily bilateral senior secured private loans to diversified North American climate transition-oriented industries. The fund is also classified as Article 9 under Sustainable Finance Disclosure Regulation (SFDR).

OMNES has announced they will be launching a new renewable energy fund (Capenergie 5) due to launch H2 2022 and will seek to raise at least €1bn to invest in the energy transition.

Spotlight: SBTi Annual Progress Report

In 2021, 2,253 companies set or committed to science-based targets, representing a rate of over 110 companies per month compared with 35 companies per month in 2020. The global market capitalisation of SBTi companies now stands at $38 trillion.

Annual Cumulative Number of Companies with Approved Targets and Commitments, 2015-2021

Source: Science-Based Target – Progress Report 2021, SBTi Website

68% of all companies have set-up scopes 1 & 2 1.5°C-aligned targets – a significant improvement from 2020 (41%). Amongst those companies, 64% declared that they intend to cut emissions at a higher rate than required by SBTi.

Scope 1 and 2 Targets Classification of Companies with Approved Targets as of December 31, 2021 (1,082 Companies)

Source: Science-Based Target – Progress Report 2021, SBTi Website

Half of the companies with approved targets and commitments operate in the services, manufacturing, and food, beverage & agriculture sectors.

Total Number of Companies by Industry with Approved Targets and Commitments as of December 31, 2021

Source: Science-Based Target – Progress Report 2021, SBTi Website

European companies represent 55% of all approved targets and commitments, mainly driven by the UK (401 companies), France (124 companies) and Germany (106 companies).

Companies with Approved Targets and Commitments by Region as of December 31, 2021

Source: Science-Based Target – Progress Report 2021, SBTi Website

On average, SBTi-approved Asset Managers commit to cover 45.6% of their fund’s PE investments by 2025/26 and 100% by 2030. Regarding financed emission for Private Equity investments, all asset managers decided to adopt the SBT Portfolio Coverage approach which is defined by the SBTi as: “committing to having Portfolio Companies set approved Science Based Targets (SBTs) so that all current and future funds, starting from the base year selected by the firm, are on a linear path to 100% SBT coverage by 2040, at the latest.”

RBSI Research Report: Can alternative investment funds accelerate the transition to net zero?

  • Alternative investment funds feel they are behind the curve on SBTs. Seven in 10 respondents say net zero targets are more focussed on corporates than AIFs.
  • SBTs are a priority for funds… Eight out of 10 say SBTs are important to their fund today, while 54% consider them very important.
  • Lack of in-house expertise is a major obstacle though. The top three barriers to setting SBTs were a lack of in-house skills/expertise (49%), time to implement (48%) and measurement difficulties (46%).
  • Pressure is ramping up. Regulatory pressure is the primary driver to adopt SBTs, and more than three-quarters (76%) of respondents say that investors are looking for clear evidence that funds are setting SBTs.
  • Yet the majority are still in the planning process. While there is widespread recognition of the importance of SBTs, take-up is currently less than half (42%) of those surveyed. The majority are still in the planning process, while 23% of these respondents do not yet have a timescale for setting targets.
  • Everyone is looking for specialist support. All respondents surveyed would value some kind of third-party support in setting SBTs. 42% plan to implement SBTs via their internal ESG team with 58% seeking external expertise.

RBSI newly released report explores the opinions of 125 key influencers in the alternative investment funds industry to understand the extent to which they are adopting science-based targets and the barriers blocking their path. Read more.

Climate and ESG Announcements by Sponsors (as at 25th May 2022)

  • Generation launches $1.7bn sustainable, growth equity fund. Generation Investment Management, a pure-play sustainable investment manager with over $36bn of Assets Under Management (AUM) announced the launch of its $1.7 billion Sustainable Solutions Fund IV. The new fund continues the firm’s commitment to driving the sustainable future. Read more
  • Axa, Unilever and Tikehau launch agriculture impact fund. Axa, Unilever and Tikehau Capital have created a private equity impact fund focused on accelerating the transition to regenerative agriculture. The three partners aim to invest €100m each, with the global strategy targeting €1bn in assets under management. Read more
  • Royal London Asset Management abstains on Shell's climate transition plan. “RLAM has decided to abstain on Shell’s climate transition plan. “We acknowledge the considerable progress made in Shell’s climate efforts and the 2021 delivery, however, we cannot fully support the plan as it currently stands.” “…there is not enough certainty in the plan that it aligns with the goals of the Paris agreement and the global necessary efforts to constraint temperature increases to below 1.5°C”. Read more
  • BlackRock to back fewer shareholder resolutions in this AGM season. While BlackRock said its view on the importance of managing climate risk remained unchanged and it continues to engage with companies over their efforts, a number of resolutions put forward at recent annual general meetings (AGM) were ‘too constraining’ on boards. Read more
  • Schroders to Push for Climate Action at Exxon, Shell and Chevron. Schroders announced that it will support shareholder resolutions at energy majors ExxonMobil, Shell and Chevron calling for ambitious climate action and transparency. Read more
  • M&G to relaunch fund as 'Paris-aligned'. M&G Investments will next month rename the £503 million ($600 million) M&G UK Select Fund as the M&G UK Sustained Paris-aligned fund. From 14 July, it will focus on clean energy, clean technology and climate solutions. Read more (subscription required to access full content)

Government and Regulatory Updates

Check-out the following article for a full review of the key ESG Regulatory updates from May.

ESG Data, Articles & Market initiatives

Singapore-based registry has been launched to help financial institutions and investors access ESG data

The blockchain-based registry will aggregate and maintain ESG certifications and data across various sectors on a single platform. It launched with 168,100 certificates, covering 60,552 companies and 110,500 assets. Read more (subscription required to access full content)

Upcoming Webinars

  • How regulators and markets are responding to the evolving EU sustainable finance drive (London | 14-15 June 133 Houndsditch): Responsible Investor’s 15th annual RI Europe conference is back in person in London on 14-15 June. This year’s edition of the event will discuss sustainable finance developments and industry best practices. Gain insights from those leading the sustainable finance drive in Europe on topical ESG themes including regulation, human rights, biodiversity, net zero, and more.  Register here

For those looking to discuss any of the above further, please reach out to our authors:

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