Partners Group has deployed €750 million in sustainability-linked loans in the last 12 months across its European lending activities, a sign that the “nascent market” for loans tied to sustainability targets is growing fast.
In an interview published by the firm, it outlines how these loans will be an integral part of Partners Group’s direct lending strategy going forward.
“Sustainability-linked loans are a big topic for us,” says Aurélie Madé, senior portfolio manager at Partners Group. “We are offering a margin ratchet on all of our financing and try to have the majority of our new investments in Europe include ESG margin ratchets.”
While the mechanisms of implementation are still in development, company owners and management teams are showing more willingness to engage around the topic.
In Europe, “most are open to discussions around the concept,” says Gerald Tee, member of management, private debt Europe at Partners Group. “LPs are partly driving this, but there is also rising regulatory pressure in Europe for investors and companies to focus on sustainability progress and reporting.”
This change in mindset is reflected in the data: the sustainability-linked loan market grew to $600 billion globally in 2021, 3.5 times its value in 2020, according to LSTA figures quoted by Partners Group.
For now, Europe is “still ahead” when it comes to embracing sustainability-linked loans, according to Partners Group. However, the firm has observed a “shift in this direction among US private equity firms”.
Tee says: “We have been in conversations with a US private equity firm acquiring in Europe, for example, and when we have raised the idea of sustainability-linked loans, they have been open to a dialogue about ESG. As more of these loans are arranged and as more data starts to come back, we will see practice evolve – we are only just starting to see information come through.”