ESG rises in prominence to become key fund differentiator

Our A-Z identifies 26 topics that illustrate what a socially responsible approach to credit markets should embrace.

To say that environmental, social and governmental issues have been rising up the agenda for private debt would be something of an understatement.

Whether it is the need to consider climate change, the growing importance of diversity and inclusion or the increased emphasis on due diligence as LPs up the ante on transparency, ESG and responsible investing have become two crucial areas of difference between fund managers.

In our A-Z of ESG in private debt, we have identified 26 topics that illustrate what a socially responsible approach to credit markets should embrace. The topics were the result of extensive canvassing of the opinion of ESG leaders, fund managers and investors as to exactly what each letter should stand for.

The choices highlight just how fast responsible investing is growing as a subject area and how quickly the debate is changing. For instance, B is for biodiversity. With all the focus on carbon emissions and climate change, it is easy to overlook other human impacts on the environment – including the grave crisis facing the world’s biodiversity as a result of human activity.

While few private debt managers have made biodiversity a focus area, the asset class will inevitably face growing pressure to compel borrowers to assess and disclose nature-related impacts. Indeed, biodiversity is in the crosshairs of regulators in some jurisdictions, such as France and the Netherlands, where financial institutions are required to identify their exposure to biodiversity risks.

There’s something for everyone in this A-Z, whether it is A for alignment, I for impact investing or Z for zero emissions. That’s the benefit of the A-Z format for ESG. It expands the sustainability debate beyond its titular three letters to offer some thought-provoking examples of just why responsible investing has become an area of such importance to fund managers and investors alike.