Private Finance Sustainability Monthly: June 2022

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

Sustainable syndicated lending market

  • Sustainable lending volumes remained robust, as we saw them rise to $55bn in May – the second highest grossing month year-to-date (YTD).
  • Turkey (71%) and Spain (65%) have been two of the most active sustainable lending markets globally this year - measured as sustainable lending activity as a proportion of total syndicated lending. Sustainable financing is becoming the market standard for financial institutions and private lenders as they continue to promote long-term investment in sustainable economic activities.
  • Green loans are still a niche area and remain very much focussed on a handful of key sectors, most notably utility/energy and real estate where respectively 4.3% and 4.2% of all syndicated loans are green in nature.
  • Notable sustainability-linked loan (SSL) transactions for May include Hyundai ($3.1bn); Lendlease REIT (S$860m); and Garanti BBVA ($596m).

Global sustainable syndicated lending, May 2022 YTD ($ billion)

Source: Dealogic, 29/06/22

Sustainable deal activity

Acqualia secured a €1.1 billion green loan from a consortium of 10 banks – the largest green syndicated loan carried out in Spain in 2022. Proceeds will be used to finance projects including water and waste treatment; renewable energy; and sustainable transport. The loan was issued under Acqualia’s green finance framework.

Data centre provider, EdgeConneX, announced that it has successfully secured a series of sustainability-linked financings, totalling $1.7 billion. Funds managed by Ares’s infrastructure debt strategy have committed a delayed draw sustainability-linked debt facility to EdgeConneX of c£1 billion, which include sustainability targets around energy efficiency. 

HSBC Bank USA and apparel company PVH announced the launch of a sustainable supply chain finance programme, providing funding to PVH’s suppliers based on their sustainability ratings. Performance assessments will be based on industry-aligned tools such as: the Social Labour Convergence Program (SLCP) and the Sustainable Apparel Coalition’s (SAC) Higg Facility Environmental Module.

BYD 2022-2 (green) – an auto asset-backed security (ABS) – launched in May 2022; the issued notes pay a fixed rate and are backed by a static pool of electric vehicle loan receivables.

Spotlight: Sustainable private equity pulse

A. Global private equity markets

Key takeaways

  • The majority of global Limited Partners (LPs) consider ESG Integration primarily as a multi-functional tool to eliminate high risk investments and implementing positive changes to portfolio companies (PCs).
  • North American LPs’ lag European peers in implementing sectoral exclusions, most notably with respect to thermal coal and deforestation.
  • Climate change remains the primary issue at the top of the agenda for LPs.
  • Science-Based Targets initiative is seen as a key net-zero alignment tool in Europe (65% of LPs) and Asia (45% of LPs).
  • The majority of US-based LPs are now incorporating ESG into their investment strategy with both internal and external reasons cited as the primary objectives of the ESG strategy. ESG is also viewed an additional lever to increase valuations at exit.

LP views on ESG’s potential to add value [1]

Industries/subsectors that LPs exclude, or plan to exclude from investment consideration for ESG reasons [1]

Most important environmental focuses of investors’ ESG programme [1]

Proportion of LPs that have, or are likely to use, Science-Based Targets initiative to measure environmental impact [1]

US-based LPs’ main objectives for developing an ESG strategy [2]

B. PRI – The PC-PE ESG Factor Map

The PRI published a new ESG heat map for private credit and equity funds. The map is based on existing ESG best practices in private markets and includes a comparison against relevant regulatory and industry frameworks.

The Private Credit and Equity ESG Factor Map – Coverage Rate [3]

  1. Global Private Equity Barometer (PDF), Summer 2022 – Coller Capital
  2. BDO Private Capital Pulse Survey (PDF), Spring 2022 – BDO
  3. The PC-PE ESG Factor Map, June 2022 - Principles for Responsible Investment (PRI)

Climate and ESG announcements by sponsors
(as at 28 June 2022)

  • Brookfield raises a record $15bn for inaugural Global Transition Fund. Highlighting strong industry support for decarbonization, demand for the fund significantly exceeded its initial hard cap, and the final fund size was oversubscribed. A diverse group of more than 100 investors from around the world committed to the fund, including public and private pension plans, sovereign wealth funds, insurance companies, endowments and foundations, financial institutions, and family offices. Read more on Brookfield
  • Temasek investing 'catalytic capital' into the transition. It’s invested in two thematic areas: 1) climate-aligned technology, which includes renewables, geothermal and hydrogen energy assets; and 2) ‘carbon negative’ technology. Previous investments have included direct air capture and nature-based solutions. Read more on Temasek (Environmental Finance, subscription required)
  • BlackRock launching energy transition megatrend-focused infrastructure strategy. Blackrock plans to launch a new “perpetual infrastructure strategy,” aimed at pursuing long-term investment opportunities in the megatrend themes of energy transition and energy security. BlackRock stated that it will work with infrastructure businesses over the long-term to help drive the global energy transition, and that it will take an active approach in helping companies transition to lower-carbon business models over time. Read more on BlackRock
  • AllianceBernstein partners with impact engine to bolster purpose-driven investment Offerings. AllianceBernstein (AB) announced a new strategic partnership with venture capital and private equity firm Impact Engine, aimed at enhancing the impact offerings for Bernstein Private Wealth Management, AB’s private wealth business. Read more on AllianceBernstein
  • Oaktree commits to measure and report portfolio GHG emissions. Oaktree has pledged to measure and report on its portfolio greenhouse gas (GHG) emissions within three years, and will work with other members to improve the reliability of these metrics, and to define emissions target-setting strategies for financial institutions. Read more on Oaktree
  • BlackRock proposes changes to SEC climate disclosure rules on Scope 3, TCFD alignment. One of the key recommendations made by BlackRock is for greater alignment of SEC rules with the Task Force on Climate-Related Financial Disclosures (TCFD) framework, noting that the SEC proposals in some areas require detailed financial disclosures beyond those recommended by the TCFD.  According to the letter, the SEC requirements would increase the cost to companies of complying with the new rules and would decrease comparability across companies and regions. BlackRock also recommends limiting companies’ liability, particularly in disclosure areas where methodologies are still evolving. Read more on BlackRock's proposal
  • Leading investor groups call for natural gas to be excluded from the UK’s ‘green taxonomy’. The CEOs of three leading institutional investor-focused organisations – the Institutional Investors Group on Climate Change (IIGCC), PRI and UK Sustainable Investment and Finance Association (UKSIF) – have published an open letter (available here) to the UK government (PDF), expressing strong opposition to the possible inclusion of natural gas activities in the UK’s ‘green taxonomy’. Gas may be necessary as a ‘bridge’ during the transition, but it should not be labelled as ‘green’. Read more on the thoughts around the UK’s ‘green taxonomy’
  • IIGCC proposes infrastructure component for net-zero framework. The IIGCC is proposing to add an infrastructure component to a net-zero investment framework for investors. The new infrastructure component is expected to become the sixth asset class covered by the Paris-aligned investment initiative’s Net Zero Investment Framework (NZIF). Read more on IIGCC

Government and regulatory updates

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

ESG data, articles and market initiatives

  • Allianz invests in sustainability data firm ESG Book. The data and technology firm raised $35 million in the funding round, which was led by investment firm Energy Impact Partners (EIP), alongside Meridiam and Allianz X, the digital investments arm of global insurer and asset manager Allianz. Read more on Allianz
  • The European Securities and Markets Authority publishes findings around ESG ratings. The most common shortcomings identified by the users were a lack of coverage of a specific industry or type of entity, insufficient granularity of data, and a lack of transparency around methodologies used by ESG rating providers. Read more on the European Securities and Markets Authority findings

Upcoming webinars and events

  • ESG & Decarbonizing Real Estate Forum (Jul 12-13 2022, Dana Point, CA): The forum will cover issues surrounding ESG including impacts on development and investment, criteria for owners, managers, developers, and builders; best practices to improve your ESG score; how to manage disclosures and reporting; impacts on residential and commercial markets; and strategies around closing the gap between profitability, sustainability and making real commitments to social change. Register here for ESG & Decarbonizing Real Estate Forum
  • Bloomberg Sustainable Business Summits (Jul 27 2022, 2:00am BST Hybrid Event, Singapore & Online): The Bloomberg Sustainable Business Summits bring together business leaders and investors globally to drive innovation and scale best practices in sustainable business and finance. Experts will explore the Asia’s unique challenges and opportunities in creating a sustainable future, from managing risk and bolstering climate resilience to navigating the energy transition. Register here for Bloomberg Sustainable Business Summits

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

Caroline Haas, Head of Climate and ESG Capital Markets

Rahel Haque, Vice President, Climate and ESG Capital Markets

Tonia Plakhotniuk, Vice President, Climate and ESG Capital Markets

Tom Cascales, Associate, Climate and ESG Capital Markets

Vishal Saxena, CFA, Associate, Climate and ESG Capital Markets

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

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in The Netherlands, authorised and supervised by De Nederlandsche Bank, the European Central Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, The Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, The Netherlands. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright © NatWest Markets Plc. All rights reserved.

scroll to top