Is ESG a luxury or “first-world problem”, given the profound economic and geopolitical issues confronting the world today? This was the question posed by James Newsome, managing partner at advisory firm Arbour Partners, moderating a panel at the PDI Germany Forum.

He quickly answered his own question in the negative – ESG is part of the most important long-term issue facing the asset class – how can private debt help pension savers to make a positive impact in the wider economy?

A more pressing question perhaps is whether ESG action really is being carried out in the right way, given the regular claims of greenwashing in the asset management industry. Newsome asked whether we may see limited partners taking legal action against fund managers that have not lived up to their stated ESG commitments.

“At the moment, it’s too early to see such cases but greenwashing is a hot topic and in a few years’ time we may start to see this happening,” said Jin Hyuk-Jang, international counsel at law firm Debevoise & Plimpton. “Also, it may not just be LPs suing GPs but regulators coming after you as well. As a GP, the message is don’t promise too much and be careful what you put in the private placement memorandum.”

Also on the panel was Priscilla Schnepper, diversified debt funds investment manager at the European Investment Fund, a major supporter of emerging private debt funds in Europe. She was asked whether an EIF commitment to a manager could be taken as proof of that manager’s ESG credentials, given the organisation was such a strong proponent of green strategies.

“Other LPs might look at us and take note because we want to ensure that key performance indicators are clear, that there is no greenwashing and there is real additionality,” said Schnepper. “I wouldn’t say we validate managers but we try to go in in detail and challenge the approaches that are taken.”

Luz Martinez is a sustainability manager at ILX, a fund manager which in January launched an SDG-focused emerging market credit fund with a $750 million commitment from APG. The fund invests in private sector loans originated by multilateral development banks and development financial institutions.

Martinez said the perceived risk of investing in developing markets was “way higher” than the actual risk. “The loans are very comparable in terms of credit margin to the high yield and leveraged loan markets but with much lower losses,” she said.