Sustainability in Private Finance: a review of 2023

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

Global sustainable lending

  • Overall, sustainable lending activity reduced in 2023, with a noticeable decline in H2 ’23, off the back of a tighter lending environment and increased regulatory pressures and concerns over greenwashing (e.g. the FCA’s new “anti-greenwashing” rule introduced in 2023).
  • Sustainable lending volumes were, for the most part, driven by the US market in 2023. However, only 6% of total lending activity was sustainable in scope (a reduction from 7% in 2022). European markets of France and Germany were the largest contributors to volumes in the region (USD 56bn) in addition to being very active in sustainable lending with 31% and 38% of lending activity respectively.
  • The second half of 2023 saw strong sustainable lending performance in Q4 (28% higher than Q3), with a contributing factor being strong Sustainability-Linked Loan (SLL) issuance in Asia, as Japan and Singapore ranked amongst the top 5 sustainable lenders in 2023 by volume.

Figure 1: Global sustainable lending volumes, H1 ’20 to H2 ’23 USD billion (% of total syndicated lending)

Source: Dealogic, 13/12/23

Figure 2: Global sustainable lending across key industries – 2022 vs 2023 % of total syndicated lending within Industry

Source: Dealogic, 10/11/23
  • The drop in sustainable lending volumes in 2023 (vs 2022) was also accompanied by a decline in % of total syndicated lending. Moreover, this contraction was largely attributable to H2 2023 (H2 ’23: 7.8% vs H1 ’23: 13.7%).
  • A breakdown across sectors (see above) shows that sustainable lending activity increased across the majority of industries in 2023 vs 2022, most notably: Energy & Natural Resources, Technology and Transportation. However, this was somewhat offset by large declines in Real Estate and Financial Institutions industries.

Infrastructure Investments – EMEA and the Americas

Infrastructure equity vs debt investments, 2013 to 2023 USD Billion

Source: Infralogic, 13/12/23
  • Total infrastructure investments in 2023 have seen a 40% reduction year-on-year  (USD 0.7tn) governed by inflation and rising interest rates exacerbating a valuation gap between buyers / sellers and freezing many traditional credit markets.
  • Issuance via Capital Markets represents a small share of Infrastructure debt volumes, with capital deployment via loans now comprising 90% of the total.
  • Infrastructure investments peaked in March this year, with USD 124.4bn deployed, of which USD 80bn was in equity. Following this, investments have seen a decline till the end of the year.
  • Brookfield, who have shown interest in decarbonisation and digitisation, closed a record-sized infrastructure fund in 2023 (USD 28bn), while KKR, Blackstone, Stonepeak and I Squared Capital have telegraphed rising ambitions in the nascent investment sector. Two private capital groups, New York-based Global Infrastructure Partners and Sweden’s EQT, are each working to raise USD 20bn-plus funds in 2024 with a focus on decarbonisation and energy.

Infrastructure investments across key industries, 2023 USD Billion

Source: Infralogic, 13/12/23

Infrastructure investments across key countries, 2023 USD Billion

Source: Infralogic, 13/12/23
  • In 2023, Infrastructure debt in Renewables and Energy sectors equated to almost half of all debt investments (47%).
  • Infrastructure has shifted away from Commodities with 43% of equity deployed for Renewable and Energy projects.
  • The US has been a key driver in renewable infrastructure projects, with a causal factor being the Inflation Reduction Act (IRA) which committed USD 369bn of funding for climate-related spending and clean-energy tax credits.

Private Debt

Private credit fund classification by vintage – Europe and North America, 2018 to 2023 number of funds launched (%)

Source: Preqin, 13/12/23

Notes: ‘ESG: Other’ includes funds that refer to: ESG integration; Shariah compliance; Sustainable Development Goals (SDG); Impact; Climate. Analysis excludes Collateralised Loan Obligation (CLO) funds.

  • Whilst the number of new Private Debt funds launched in North America and Europe was lower in 2023 relative to 2022 (78 vs. 121 respectively), the proportion of Article 8 and 9 [private debt] funds rose from 21% to 29%.
  • This trend is expected to continue with the growth of the Private Debt market.
  • A key Article 8 private credit fund launched in 2023 was Capital Four Private Debt V - Senior. The fund has a total size of USD 2.2bn and focuses exclusively on first lien senior secured bilateral financings to companies located in the Nordics, DACH and BENELUX.
  • The OSP Fixed Income Impact Fund is an important fund launched in 2023, worth USD 500mn. OSP expects to receive recurring investment opportunities over the next 5 to 10 years via three specific channels: economic development, housing and green energy.

Sustainable deal activity

CapitaLand Malaysia Trust (CLMT) raises USD 148.06 million in private placement of sustainability-linked loan. The Malaysia-based real estate investment company has raised an SLL in private placement of MYR693 million (USD 148.06 million) to fund the acquisition of Queensbay Mall.  The facility marks the largest loan facility to-date for CLMT and incorporates sustainability performance targets around green building certification and reduction in energy consumption for Queensbay Mall.

QIC secures USD 300 million sustainability-linked loan. Brisbane-based investment manager, QIC, has converted a subscription finance facility for one of its infrastructure funds into a USD 300 million SLL. The fund, QIC Infrastructure, aims to primarily invest in transport, energy / utilities, social / healthcare sectors and utilise three key performance indicators (KPIs), as well as a stretch target, to determine the facility’s interest rate margin. The ESG KPIs used in the facility are Science Based Targets initiative (SBTi) validation for portfolio companies, gender diversity, Global Real Estate Sustainability Benchmark (GRESB) rating, and stretch targets, demonstrating reduction in greenhouse gas emissions for portfolio companies with SBTi validated targets.

Climate and ESG announcements by Sponsors (as of 21 December 2023)

Apax raises USD 900 million for Global Impact Fund

Apax, a global Private Equity (PE) advisory firm, raises USD c.900 million for its Article 9 Apax Global Impact Fund (AGI) which aims to invest in mission-driven companies with core products and services that tackle environmental or social issues. AGI’s proprietary impact measurement system, evaluates and monitors impact outcomes across 4-key themes: health and wellness, environment and resources, social and economic mobility, and digital impact enablers. In addition, a percentage of carried interest is linked to the fund’s impact performance.

Ara Partners closes over USD 3 billion of new capital commitments

PE and infrastructure investor, Ara Partners, closed on more than USD 3 billion in new capital commitments, which includes a successful USD 2.8 billion fund-raising for its third fund, Ara Fund III. Fund III will continue Ara’s strategy of investing in the decarbonisation of the industrial economy. The Fund will pursue both buyout and growth investments in industrial companies primarily headquartered in the US, Canada and Europe that have the potential to achieve reductions in carbon emissions across traditionally high emissions sectors, including industrial and manufacturing, chemicals and materials, energy efficiency and green fuels, and food and agriculture.

Amundi launches agriculture-focused impact investment strategy

European asset manager Amundi announced the launch of Amundi Ambition Agri-Agro Direct Lending Europe, a new private debt impact investing strategy aimed to finance European SMEs, mid-sized business businesses and cooperatives in the agricultural and agri-food sectors committed to transitioning to a more sustainable, low-carbon model that preserves natural resources, as well as ensuring food sovereignty. The programme has a total fundraising target of EUR 750m and institutional vehicles under the programme will be classified as Article 8 under the EU Sustainable Finance Disclosure Regulation (SFDR).

Mirova target EUR 350 million for sustainable land management strategy

Mirova, the Natixis Investment Managers affiliate dedicated to sustainable finance, announces the final deployment of the Land Degradation Neutrality fund and the launch of Mirova Sustainable Land Fund 2, its second strategy dedicated to sustainable land management, which aims to raise EUR 350 million from public bodies and institutional investors. The new fund will support agroforestry, sustainable forestry, and regenerative agriculture projects in developing countries, while preserving and restoring nature and the climate.

CIP launches USD 3 billion clean energy Growth Markets Fund

Copenhagen Infrastructure Partners (CIP) announced the launch of the Growth Markets Fund II, during COP28 in Dubai with a focus on developing and building offshore and onshore wind, solar photovoltaic (PV), energy storage and Power-to-X projects in high growth middle-income markets across Asia, Latin America, and EMEA. The fund is expected to enable more than 10GW of clean energy as well as reduce 10 million tCO2 annually and is set to be the world’s largest fund focussed on greenfield renewable energy in high growth, middle-income markets.

responsAbility launches USD 500 million climate investment strategy for Asia

Global impact pioneer responsAbility Investments AG (part of M&G plc) together with Germany's development bank KfW and the Dutch development bank FMO, has launched a USD 500 million climate investment strategy. The strategy leverages a blended finance structure to channel public and private capital towards CO2 reduction in Asia across sectors with high CO2 savings potential, such as renewable energy, battery energy storage, electric mobility, energy efficiency and circular economy.

BlackRock energy transition and circular economy fund raises almost USD 1 Billion

BlackRock’s open-ended Evergreen Infrastructure Fund raises almost USD 1 billion in commitments from European founding partners. Launched in June 2022, the Fund focuses on investing in energy transition and circular economy, as well as energy security, transportation and digital infrastructure, across Europe and North America. BlackRock seeks to capitalise on the recently enacted US Inflation Reduction Act and will track Temperature Alignment KPIs which will help the portfolio management team align the Fund to a 1.5°C scenario.

ESG data, articles and market initiatives

ESMA announces tougher tests for funds seeking to use ESG and sustainability-related names

The European Securities and Markets Authority (ESMA) requires fund managers seeking to market their products as ‘sustainable’, to ensure that a minimum of 80% of investments meet the sustainability characteristics or objectives, apply the Paris-aligned Benchmarks (PAB) exclusions’, and invest meaningfully in sustainable investments; reflecting the expectations investors may have based on the fund’s name.

ISDA to publish sustainability-linked derivative legal clauses

The International Swaps and Derivatives Association (ISDA) will release a set of legal clauses to promote sustainability-linked derivatives (SLD), in its first step towards standardising the nascent market. Following the initial SLD Guidelines published in 2021 and subsequent papers, the trade association will publish clauses relating to the role of third-party reviewers as verifying agents, failure to deliver key performance indicator (KPI) certificates, and dispute resolution.

UK’s FCA publishes final Sustainability Disclosure Requirements and investment labels

The FCA published its final Sustainability Disclosure Requirements (SDRs), sustainable investment labels and an anti-greenwashing rule applying to all firms authorised by the FCA. Four new sustainability investment labels have been introduced to enable funds to be labelled as “sustainability focus”, “sustainability improvers”, “sustainability impact”, or “sustainability mixed goals”. Firms must comply with the anti-greenwashing rule from 31 May 2024 followed by the labels regime and disclosure requirements taking effect from 31 July 2024.

Agricultural climate and nature data platform launched

Wollemi.io, an agricultural data platform, has been launched to assist corporates and financial institutions on emissions reporting as well as manage climate and nature risks from land and agricultural investments. The platform uses machine learning to convert national-level emissions data into asset level metrics (e.g. at the farm or land level) to supplement any data gaps.

Sustainable building tech startup Vizcab raises USD 5.5 million

Vizcab raises USD 5.5 million in a Series A round aimed at supporting the acceleration of net zero in the construction industry. Vizcab offers a SaaS platform that calculates the Life Cycle Assessment (LCA) to reduce the carbon impact of construction projects, targeted at real estate developers, architects, and construction engineers. The solution enables users across the construction value chain, to develop net-zero building strategies and meet environmental regulations and carbon budgets requirements.

Upcoming webinars and events

Building Tomorrow: Introducing the GRESB Infrastructure Development Asset Assessment (18 January 2024, Virtual)

The webinar is designed to help you learn more about the new, transformative GRESB Infrastructure Development Asset Assessment launching in 2024 and how it has been tailor-made for greenfield developments and pre-operational assets. What to expect: an introduction of the 2024 Development Assessment; a participant spotlight (case study of a GRESB participant gearing up for the assessment); the future of sustainable development; a live Q&A Session. Additional details of the event and a link to register.

PEI Responsible Investment Forum (20 February 2024, New York)

The Responsible Investment Forum: New York, co-hosted by the Principles for Responsible Investment (PRI), returns for its eighth year on 20-21 February, bringing together sophisticated institutional investors, fund managers & advisors. The forum will be an opportunity to gain valuable insight into what investors are looking for when allocating to private equity, and to set the direction for your responsible investment strategies. Additional details of the event and a link to register.

IISD Advancing Natural Infrastructure 2024 Forum (21 February 2024, Calgary)

Hosted by the International Institute for Sustainable Development (IISD), together with WaterSMART Solutions and the Natural Assets Initiative, the Advancing Natural Infrastructure 2024 Forum is an opportunity to discuss the state of play of natural infrastructure on the prairies and shape the future of prairie water infrastructure by working with nature. Additional details of the event and link to register.

Private Equity Wire European ESG Summit (28 February 2024, London)

The Private Equity Wire European ESG Summit is a one-day retreat focusing on emerging opportunities and best practice in ESG for operations, finance, legal, product and back-office leaders across private equity, venture capital and wider private markets funds. Additional details of the event and a link to register.

Economist 9th Annual Sustainability Week (4-6 March 2024, London)

The 9th annual Sustainability Week, incorporating the Energy Transition summit (ETS), will deliver vital information that you can use to move faster on reducing emissions and improving your environmental impact in 2024. Topics discussed at the event will include: decarbonising business and industry; financing net zero; supply chain and circularity; innovative technology and adaptation; biodiversity and natural capital; energy Transition Summit. Additional details of the event and a link to register.

Natural Capital Investment EMEA (12 March 2024, London)

Environmental Finance will be hosting the annual Natural Capital Investment EMEA conference on 12 March in London. Nature and biodiversity are finally being given their rightful place as an integral part of sustainable finance – and hopefully of finance more broadly. Join this event to discuss the key issues involved with natural capital investment approaches, regulation and policy, data gaps and more. Additional details of the event and link to register.

PEI Infrastructure Investor Global Summit (18-21 March 2024, Berlin)

The Infrastructure Investor Global Summit will bring together 3,000+ investors, managers and strategic partner. Key themes to be explored:

  • The fundraising fightback: how managers can navigate their way back to success
  • High inflation, high valuations & more: how is infrastructure’s renowned resilience shaping up?
  • Capacity for climate considerations in investor portfolios
  • Accelerating the transition to net-zero: energy assets in focus
  • Why investment in the digital revolution has become essential for investors

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

  • Rahel Haque, Vice President, Climate and ESG Capital Markets
  • Fazl Ahmad, Analyst, Private Finance Structuring and ESG
  • Javier Patria, Analyst, Climate and ESG Capital Markets

For any unfamiliar terms used within this article please refer to our Insights glossary.

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