Carlyle Global Credit launches financing programme linked to decarbonisation

The manager announces first two such loans, and will offer pricing benefits to borrowers who achieve targets.

Carlyle says its global credit platform has launched a decarbonisation financing programme that will provide a pricing incentive to borrowers to reduce greenhouse gas emissions or achieve climate-related targets.

Carlyle’s offering documents allow a borrower to choose to take advantage of the programme or not. Borrowers have six months to obtain an externally verified picture of their carbon footprint, at which time they will set annual targets to reduce emissions.

The programme, one of the first of its kind in the US private credit market, was an outgrowth of Carlyle’s experience in ESG-linked debt instruments. Carlyle already has structured more than $20 billion in ESG-linked financing across its global platform with its lenders and portfolio company lenders, Megan Starr, Carlyle’s global head of impact, told Private Debt Investor. Starr was hired in 2019 from Goldman Sachs’s Investment Management Division to design and implement Carlyle’s long-term impact strategy and oversee its ESG team.

At the same time, Carlyle announced the closing of two such debt financings: Morgan Stanley Capital Partners’ buyout of Fairway Lawns and American Industrial Partners’ refinancing in support of its portfolio company, The Carlstar Group. Terms weren’t disclosed, but both deals included potential pricing reductions related to reducing the intensity of their greenhouse gas footprints, or other related key performance indicators, Carlyle said in a news release.

Mark Jenkins, Carlyle’s head of global credit, said in the release that “strong ESG competencies are a hallmark of management excellence, and that successful decarbonisation requires meaningful engagement between investors and businesses”. Carlyle seeks to drive value through the programme, he said, by helping borrowers “improve their competitive positioning while building on Carlyle’s long history of ESG integration”.

Starr, who helped spearhead the ESG Data Convergence Initiative to standardise ESG measurement within private markets and was named Game Changer of the Year in the PEI Awards 2021, echoed that sentiment in the interview with PDI. “Competitive juices are everything,” she said, noting that the manager “saw the power of ESG-linked targets to incentivise behavioural change” in its PE business and wanted to extend those incentives to potentially enhance the creditworthiness of Carlyle’s private lending portfolio companies.

“As a non-controlling asset class, credit naturally has lagged private equity’s ability to collect ESG data and incentivise ESG improvements,” Starr said in the release. She said the new approach addresses both challenges, and that Carlyle believes it may result in “significant carbon emissions reductions” within the portfolio over time.

“So many corporations are struggling with pressure from customers, stakeholders and PE sponsors” to implement carbon-reducing strategies, Starr said in the interview. Carlyle offers them the suite of resources that are available to its PE companies, including a 70-page energy and carbon management playbook and an A-to-Z guide on how to decarbonise. Starr noted that 90 percent of global GDP is covered by net-zero targets, with thousands of companies making a commitment to reduce greenhouse gases.

Carlyle Global Credit recently overtook private equity as the parent’s largest segment in terms of fee-earning assets under management. In the second quarter, Global Credit’s assets ballooned 57 percent year on year to $143 billion, helped by Carlyle’s acquisition of Fortitude, as well as by fundraising for credit strategies and several managed accounts.