Baring Private Equity Asia has secured an ESG-linked credit facility of up to $3.2 billion to support its private equity platform.
The interest rate of the loan is linked to sustainability targets in two primary areas, according to an announcement from the firm: gender diversity at its portfolio companies and GHG emissions reporting and reduction.
The facility is notable for its size and because it is the first of its kind in Asia. It is on a similar scale to those agreed by Carlyle for its US and European businesses, and EQT for its private equity and infrastructure businesses.
There are two sustainability coordinators for BPEA’s facility – Standard Chartered and BNP Paribas – and nine lenders in total. An independent third party will verify performance against the targets.
The Hong Kong-headquartered firm is currently in market with its latest pan-regional flagship fund, seeking $8.5 billion for BPEA Fund VIII, according to documents prepared for Rhode Island State Treasury.
“We hope this pioneering debt facility will set a precedent for the private equity industry, not just in Asia but globally,” said Jean Eric Salata, chief executive and founding partner of BPEA.
“We are active owners, and we engage openly with our portfolio companies,” said Patrick Cordes, BPEA’s chief operating officer. “This facility will enable us to be more transparent with investors about how we are using that approach to make a difference in the world.”
Credit facilities, both at the fund level and at the portfolio asset level (like this one, inked earlier this week for a Bluegem Capital Partners portfolio company), are increasingly being linked to sustainability goals.
While momentum is gathering behind the trend, there is not yet a clearly standardized approach. At affiliate title Private Debt Investor’s 2021 Virtual Forum earlier this month, one investor described the area as being “a little bit the Wild West in terms of what people are doing.”
Nevertheless, ESG-linked loans with margin ratchets are increasingly seen as way of not just creating financial alignment with sustainability objectives, but also of promoting transparency between financial sponsors, lenders and limited partners.