Private Finance ESG Monthly – 26 January 2022

There was EUR 569 billion of sustainable lending recorded in 2021, of which EUR 505 billion – or 89% – related to sustainability-linked facilities, with green loans generally having a lower uptake overall.

ESG syndicated lending market, 2021 review

Global ESG syndicated lending, 2021 monthly breakdown (€ billion)

Source: Dealogic, 20/01/2022

Whilst Europe and North America favoured sustainability-linked loans, the rest of the world – and the emerging markets especially – were choosing green loans. This regional divide can possibly be explained by the high concentration of transitionary activities in those countries, or perhaps simply the lack of data transparency making Key Performance Indicator (KPI)-linked facilities more challenging to execute there.

Top 10 countries for ESG syndicated lending 2021, sustainability linked vs green

Source: Dealogic, 20/01/2022

Top 20 sustainable lending transactions, by deal value (2021)

Source: Dealogic, 20/01/2022

Latest climate and ESG announcements by sponsors

Aviva Investors and Par Equity announce plans to deliver a significant woodland creation and peatland restoration scheme. The investment vehicle aims to capture over 1.4 million tonnes of carbon. Read more.

CIBC commits $100 million to climate tech and energy transition funds to accelerate climate action. Advancing its contribution to enable a more sustainable future, CIBC will make new Limited Partnership (LP) investments in low carbon and climate tech funds, driving the development of new climate innovations.

Amundi presents its new “ESG Plan 2025”. Amundi will include ESG objectives in the remuneration of their 200 senior executives, and set ESG targets for all portfolio managers and sales representatives too. Read more.

Government and regulatory updates

17 December, UK. FCA’s new rules on climate-related disclosures to help investors, clients and consumers

The Financial Conduct Authority (FCA) has published two Policy Statements confirming final rules and guidance to promote better climate-related financial disclosures. The regulator states that better corporate disclosures will help inform market pricing and support business, risk and capital allocation decisions. Improved disclosures to clients and consumers will also help them make more informed financial decisions. This, in turn, will strengthen competition in the interests of consumers, protecting them from buying unsuitable products and driving investment towards greener projects and activities.

Issuers of standard listed shares, or equity shares represented by certificates (global depositary receipts) must now include a statement in their annual financial reports setting out whether their disclosures meet the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). If they don’t, they’ll need to explain why. FCA-regulated asset managers and asset owners - including life insurers and pension providers – will have to disclose how they take climate-related risks and opportunities into account in managing investments. They’ll also have to make disclosures about the climate-related attributes of their products. Read more.

1 January, EU. The European Commission released, for internal consultation, the additional and long-awaited delegated act

The Delegated Act (DA) includes economic activities associated with natural gas and nuclear energy, as environmentally sustainable transition activities under the EU taxonomy. The development has raised acute division among market participants and public bodies as to whether it is a good development or not. Initially the Commission provided a deadline for internal consultation (with Member States and the EU Platform on Sustainable Finance) of Jan 12, but it has been extended to Jan 21. Despite the slight extension, it is unlikely that the direction of travel of the Commission will change. The topics of nuclear and gas have long ago become extremely political – which was further exacerbated by the decision to allocate public funds, such as COVID-19 pandemic recovery funds, to EU Member States based on their green credentials amongst other factors.

Notably, the draft DA introduces additional disclosure requirements to ensure that investors can make an informed decision on whether they want to invest in such green activities. Companies that carry out, fund, or have exposures to nuclear energy and gas-related activities will have to provide information on the proportion of these activities via a dedicated template. The draft DA therefore proposes amendments to the Taxonomy related disclosures (Article 8) to take effect from 1 January 2023, and also states that the Commission will propose to amend the Sustainable Finance Disclosure Regulation’s (SFDR) disclosure requirements. Realistically, private investors who have already been applying exclusion policies for fossil fuel/nuclear related activities are likely to continue to do so, therefore it is not yet clear to what extent the inclusion of nuclear and gas in the EU taxonomy will have an impact on future private capital allocation to sustainable projects.

ESG data, articles and market initiatives

  • Wellington Management profiles why ESG factors matter in private markets. Wellington explores the diverse ESG issues private companies face across industries; highlighting five key areas to prioritise, and sharing the essential steps private companies can take to keep up with today’s evolving ESG risks and opportunities. Read more.
  • The Risk and Return of Impact Investing Funds, Jeffers & al. Researchers from Chicago Booth and Yale provide the first analysis of the risk exposure and consequent risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. They find that impact fund cash flows do not exhibit positive correlation with a public market sustainability factor, consistent with the idea that private and public market sustainability strategies capture distinct exposures. Read more.
  • Amundi article investigates the role of Private markets on ESG and transformation. According to Amundi’s 2022 Investment Outlook, next year will feature growth deceleration, persistent inflation pressure and asynchronised central bank action. 2022 will also be a pivotal year for the transition to carbon neutrality and the development of a more inclusive growth model. In this environment, real assets and private markets have an important role to play in investors’ portfolios; they can help enhance diversification. Read more.

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

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