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Responsible investment and private debt

20/02/2019

The key concepts of responsible investment are complementary to private debt with its core focus on analysing and managing risk through relationships with investee entities.

The idea of applying ‘mainstream’ responsible investment to private debt has both developed and matured during the decade since the financial crisis of 2007/8. However, little has been written on this topic.

The latest report from the United Nations-supported Principles for Responsible Investment (PRI), “Spotlight on responsible investment in private debt”, aims to provide guidance and case studies on best practices around the implementation of responsible investment in private debt.

“There are differences in the way practitioners implement responsible investment depending on whether they invest in public or private debt or equity, and in liquid or illiquid markets.” – PRI CEO Fiona Reynolds

Joining forces with the PRI

We are delighted to have been involved in the PRI’s latest initiative to explore environmental, social and governance (ESG) matters for fixed income investors. Through our years of experience investing in the private debt markets combined with our responsible long-term lending practices, we have not only helped to guide the content of the report but have also provided a detailed case study.

Case study: ESG due diligence of sponsor and corporate in the leveraged
loan market

Our case study, which is published alongside the PRI’s main report, looks at the drivers for integrating ESG in the leveraged loan market and the role of responsible, long-term lenders in helping to manage ESG risks on behalf of underlying investors. Here we describe a practical investment example where we performed extensive credit analysis and ESG-focused due diligence on a portfolio company and its private equity (PE) sponsor in order to evaluate the transaction and quality of the business, before deciding to invest in the new loan issue. Importantly, given the nature of the underlying business, we needed to assess the commitment to sustainable palm sourcing under new PE ownership:

ESG in practice: Unilever's global spreads division
View the UNPRI report

Additional materials:

The release of the report and accompanying case study also follows our contribution to two other major pieces of work with the PRI during the last 18 months:

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