regulation

Infra debt teams grapple with ‘overwhelming’, ‘constantly moving’ ESG rules

AXA IM’s Bertrand Loubieres is hesitant to set up an Article 9 fund, describing a ‘conflict’ with equity sponsors to obtain emissions data.

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Debt investors are feeling daunted and disorientated by the onslaught of ESG developments. “No one I’ve met can really tell you what ESG is. Internally, we’re still grappling with it,” said Ampega Asset Management’s Vivek Sapra, speaking at PEI Media’s Infrastructure Investor London Forum last week.

“We don’t know what an Article 9 fund is. Everyone’s talking about energy transition. I don’t really know what that means,” said AXA Investment Management’s head of infrastructure debt, Bertrand Loubières. “It’s not that I don’t want to do it. But there’s no sense of direction… The regulation is constantly moving.”

Loubières’ team “can’t take a punt” on whether a borrower will be Article 9-compliant by the end of a 10-year fund’s life, he added. “Some of our team doing ESG are having a nervous breakdown because the amount of [regulation and disclosure obligations] coming out is overwhelming.”

The oft-cited struggle that lenders have in obtaining portfolio ESG data is another factor making Loubières hesitant to commit to Article 9 disclosure requirements. He wants to avoid situations where the private equity sponsor of a deal declines to provide emissions data because they are under no obligation to do so. “Even though our LPs are exactly the same, you have this conflict with the equity [sponsor], which is absolutely not helpful.” Standardised ESG reporting obligations in loan agreements would help resolve this, Loubières added.

Ampega, the asset management arm of German insurance company Talanx, is “still grappling with the term ‘ESG’”, said Sapra. LPs are asking the firm, “Is this particular debt transaction ESG compliant?” Defining the “social” component of ESG is particularly puzzling. “Is a road ESG-compliant? If it gets cars moving, reducing congestion… I think there’s going to be a more rigorous stance [by LPs] on what the ‘S’ really means and how we should assign it in our transactions.”

The firm is “looking for second party opinions from a number of these boutique advisory firms that have suddenly appeared and claim to be experts on ESG”, Sapra added.