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An anti-ESG backlash in some US states has created challenges for private markets managers but there are few signs of ESG moving down the priority list elsewhere.
Progress has been made but more still needs to be done as GPs strive to make their sustainability efforts meaningful.
In private markets climate investing, as with other impact investing themes, capital has gravitated primarily towards equity strategies. This is about to change.
Sarah Miller, Redington
Nearly half of private credit managers had included one in a deal when surveyed last year, said Sarah Miller, senior vice-president at the investment consulting firm, in a video interview at the Impact Investor Global Summit.
A grey brick with 'regulations' written in yellow on top
The Pension Insurance Corporation, which has 16% of its NAV invested in private credit, is seeing ESG elements creeping into loan terms, but a tweak to insurance regulation would make smooth the way for more.
CalPERS is an influential LP with a $9.2bn allocation to private debt and often writes cheques above the $1bn mark.
Footprints in the snow
Private debt and ESG don’t have a long history together, but there are signs of much-needed progress being made.
The coupon changes depending on the borrower's performance on water use, material waste and carbon emissions.
There is a 'brown discount' that needs to be applied to real estate assets that are not on the right path to net zero, says Schroders Capital's global head of real estate.
Notes from a call with Kirsten Bode, co-head of European private debt at Muzinich & Co, on ESG margin ratchets, SFDR and ESG exclusion lists.

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