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In brief: ESG higher on lenders’ agenda, but data issues persist

'The integration of ESG factors into leveraged finance investing is continuing at pace, evolving to be much closer to that of public equity markets,' said ELFA chief executive officer Sabrina Fox.

Investors in the European leveraged finance market have come a long way in how seriously they take environmental, social and governance issues. That much is clear from a new study by the European Leveraged Finance Association.

The study found that just 6 percent of credit investors were using negative screening – ie, simply sifting out investments not complying with ESG policies – as their primary approach to ESG, down from 34 percent in 2019. Today, 86 percent of respondents have a far more comprehensive approach of integrating ESG factors “systematically and explicitly in the investment process”.

“The integration of ESG factors into leveraged finance investing is continuing at pace, evolving to be much closer to that of public equity markets,” said ELFA chief executive officer Sabrina Fox. “Challenges remain for investors in the sector, however, particularly with regard to availability of good quality ESG data and gaps in knowledge among key market participants.”

Almost all investors surveyed (98 percent) said they have passed on, reduced or sold out of investments due to ESG issues in the past 12 months, with the same number citing availability of good quality data as the greatest obstacle to comprehensive ESG analysis. This is driven by gaps in knowledge of ESG and related regulations among management teams and other stakeholders, as well as limited coverage of European leveraged finance by ESG data providers.