Companies borrowing from private debt managers have rapidly improved their ESG data disclosure, according to Alcentra.
In a whitepaper seen by New Private Markets and due to be published later this week, the private debt firm’s co-head of private credit Joanna Layton and Vai Patel, head of ESG, detail the development of the sustainability-linked loan (SSL) market, and the lessons it has learnt from developing its own SSL capabilities.
The former private credit group of investment bank BNY Mellon, Alcentra was purchased by Franklin Templeton in 2022 in a transaction worth up to $700 million, according to affiliate title Private Debt Investor. The firm manages $34 billion of assets, according to the NPM database.
Since entering the market in 2017, SLLs have garnered significant interest from borrowers and investors. This peaked in 2021, per the report, when SLL issuances totalled $517 billion. This has fallen in the years since, which Alcentra attributes to the drop in primary bank debt issuance.
Since 2021, the market has begun to standardise, with circa 10 basis points being the standard ESG margin ratchet, according to the report. 77 percent of SLLs feature two-way ratchets, meaning they include step-up and step-down provisions. When it comes to KPIs, greenhouse gas emissions is the most commonly-cited metric, though KPIs relating to biodiversity, gender equality and education, among other areas, have all been seen in the market. Alcentra recommends KPIs that are material, stretching, quantifiable and timebound.
Alcentra also surveyed 56 of its borrowers on the sophistication of their disclosure practices. The firm has seen significant improvements in the amount of data provided by its borrowers compared to last year. Scope 1, 2, and 3 emissions; energy consumed; and gender pay gap statistics are now being provided by the majority of its portfolio.