ESG sub-lines in focus

Download the April/May issue.

Download the April/May edition: As our cover story this month suggests, the tiny corner of the sub-line market for ESG-linked facilities is likely to grow this year. All signs are pointing to increased investor and GP focus on ESG concerns, after a harrowing year of environmental and social crises. This is still just the beginning for these kinds of facilities, which are not only a good tool for banks to develop relationships with managers, but for managers to boost their ESG profiles with investors – thus all but ensuring that more will come.

The key to the market’s maturity will be in making sure that ESG lines help funds and their assets meet, and even exceed, the increasingly serious expectations among investors and the wider public for environmental and social change.

The jury is out on whether that will come to pass. It is unclear how much sub-lines contribute to ESG transparency for LPs, apart from the fact that they will notice if a margin discount is lost. It is even unclear, in most of the few existing cases, what metrics and goals underpin these facilities. Should this state of affairs continue, their value as a marketing tool should quickly wane.

However, I suspect more evolution and innovation is to come. ESG considerations are still climbing the ladder of priorities for private markets. But as they do it seems feasible that, in combination with other tools, an ESG-linked fund financing market could be a fruitful way of helping drive meaningful change.

Email prepared by Graham Bippart