• Despite the challenging macro backdrop (with overall global syndicated lending volumes lagging behind 2021), year-to-date (YTD) sustainable lending volumes have remained above 2021 levels, despite the spread in volumes shrinking over recent months. As at the end of September, global cumulative green and sustainability-linked lending amounted to $480 billion (compared with $464 billion at the same point in 2021) as outlined in Chart 1.
• Whilst Asia has made a greater contribution to sustainable lending volumes in 2022 ($85 billion) the market is still largely driven by North America and Europe, as seen in Chart 2. Interestingly however, despite being at the epicentre of most things sustainable, Europe has seen a contraction in overall sustainable lending volumes relative to 2021; and in 2022 volumes are comparable with North America ($187 billion vs $177 billion respectively).
• Particular transactions of note that occurred in October 2022 include: Tetra Tech’s $1.25 billion Sustainability-Linked Loan (SLL) in the US (an amendment to an existing $750m facility signed in February 2020), which will be used to support acquisitions, and Lendlease’s $448m SLL, where proceeds will be used for general corporate purposes. 

Chart 1: Cumulative Global Sustainable Lending $Billion: 2021 Vs 2022 YTD

• Ardian has closed its fifth mid-market European direct lending strategy with €5 billion in capital commitments (130 investors committed to the fund). The fund is classified as Article 8 under Sustainable Finance Disclosure Regulation (SFDR). 
• LGIM has handed a £70m loan to Saxon Weald housing association for a slew of energy efficient homes in the South East. The deal marks LGIM Real Asset’s eighth ESG-linked foray into the corporate debt space. The sustainability-linked long-term financing will be used to fund new homes in Sussex and Hampshire, with Saxon Weald targeting EPC A ratings on all new-builds.
• Sacyr, a global concessions, infrastructure and services group has signed an SLL to refinance €355 million of corporate debt. In this transaction, Sacyr assumes sustainability and safety commitments based on the definition of both CO2 reduction indicators and the rate of labour accidents – failure to comply with these terms involves an adjustment on pricing.
• State Street announced an inaugural $500 million bond issued under its sustainability bond framework. The proceeds from the bond will go towards funding projects that include: affordable housing; renewable energy; Leadership in Energy & Environmental Design (LEED) certified buildings; socioeconomic advancement and employment (with a focus on racial equity, social justice, education or workforce development); essential services (including education and healthcare) and environmental infrastructure and services (clean transportation and sustainable water management).
• KKR has raised nearly $1.9 billion for a global impact fund; the private equity firm’s second such fund. The impact fund will invest into lower mid-market companies whose companies will address environmental or societal challenges across 4 themes: climate action, lifelong learning, sustainable living, and inclusive growth. 

The ESG Data Convergence Initiative (EDCI) is a partnership of private equity firms that aims to create a common ESG data collection template and enhance the industry benchmarking capabilities. 169 General Partners and 83 Limited Partners participate in the initiative, representing more than $24 trillion under asset management, and 2,000+ portfolio companies included in the benchmark. 

ESG Data Convergence Initiative Template

Greenhouse gas emission and energy consumption 

• Scope 1 Emissions (tCO2e)
• Scope 2 Emissions (tCO2e)
• Scope 3 Emissions (tCO2e) (optional)
• Total energy consumption (kWh)
• Renewable energy consumption (kWh)

Diversity

• Total number of board members
• Number of women board members
• Number of LGBTQ board members (optional)
• Number of board members from under-represented groups (mandatory metric for US, Canada, UK and Australia PortCos; optional elsewhere)
• Total number of C-suite employees (optional)
• Number of women C-suite employees (optional)

Employee

• Number of work-related injuries
• Organic net new hires
• Total net new hires
• Annual percent turnover
• Do you conduct an annual employee survey (Y/N)?
• % Employees responding to survey (optional)

BCG recently published its first results from the benchmarking exercise. Ben Morley, Partner & Associate Director presented key takeaways in our latest Private Finance 5 in 5 podcast. 

Chart 3: Data on 1,991 portfolio companies

Publicly owned companies are more advanced when it comes to renewable energy usage and diversity, than their private counterparts. This could be explained by the fact that public firms have faced regulatory pressure and disclosure requirements for many years while many private firms are at the beginning of their ESG journey.

Chart 4: Median share of renewable energy (%)

BCD and EDCI found that privately owned companies have been increasing their share of renewable energy usage more rapidly than public firms, for the past two years.

Chart 6: Change in energy usage from renewable in 2021/2022 (%)

Allianz Global Investors targets $1 billion for blended finance debt fund

• Allianz Global Investors said it’s looking to raise $1 billion for its third blended finance debt fund, a mix of concessional and institutional capital, seen as a crucial route to scaling up private investment in emerging economies. 
• The fund will be AllianzGI’s third blended finance debt strategy. The firm has so far raised $2.5 billion across five blended finance funds in both debt and equity since 2017.
• It will focus on climate mitigation and adaptation, targeting assets in low-carbon sectors across energy, resilient/transition infrastructure, financial institutions, agricultural business, manufacturing and services.
• The Allianz Climate Solutions Emerging Markets (ACSEM) strategy, which AllianzGI will manage, will include investment from its parent, German insurer Allianz, as well as an unknown regional development finance institution (DFI). Both Allianz and the DFI will help source projects across a range of low-carbon sectors including energy, infrastructure and agriculture, with a focus on both climate adaptation and resilience.

BlackRock launches ESG version of $15bn Global Allocation Fund

• BlackRock has introduced an ESG version of its hugely successful Global Allocation Fund (GAF) in Europe. The new Sustainable Global Allocation UCITS offering will give conscientious investors access to a sustainability-focused variant of the American giant’s $15 billion Business Growth Fund GAF. 
• The BGF Sustainable GAF uses an ‘externalities’ framework which evaluates and ranks underlying investments based on positive and negative externalities.
• A minimum of 50% of total assets will go towards investments that have positive externalities and it will exclude those with negative externalities. In addition, at least 90% of its holdings are ESG-rated, and part of its focus will be to achieve lower carbon emissions in the corporate world.
• Specific sectors are automatically excluded such as fossil fuels, tobacco, controversial weapons, nuclear weapons and ”controversial business practices”.

Munich Re on Thursday announced stricter policies for investing in and underwriting oil and gas projects, drawing praise from environmental activists

• As of 1 April 2023, Munich Re will no longer invest in or insure contracts/projects exclusively covering the planning, financing, construction or operation of
  • New oil and gas fields where, as at 31 December 2022, no prior production has taken place
  • New midstream infrastructure related to oil, which have not yet been under construction or operation as at 31 December 2022
  • New oil-fired power plants, which have not yet been under construction or operation as at 31 December 2022
• It applies to direct illiquid investments, their primary, facultative, and direct (re)insurance business. The same applies where such risks are contained or bundled in one cover together with other risks (e.g., existing oil or gas fields), when the cover is mainly designed to protect one or more of such new risks. Furthermore, in its own listed equities & corporates portfolio, as of 1 April 2023, Munich Re will cease to conduct new direct investments in pure-play Oil & Gas (O&G) companies. As of 1 January 2025, Munich Re will require a credible commitment to net-zero greenhouse gas emissions by 2050 including corresponding short- and mid-term milestones from listed integrated O&G companies with the highest relative and absolute emissions.
• The Insure Our Future campaign said Munich Re’s move was “a significant step and a clear signal to the global insurance market”. 
• Climate activists fear that insurers have been enabling polluting industries like coal and oil, while insurers have advocated a more moderate transition in step with a changing industry.

BDC launches $400 million Climate Tech Fund

• The Business Development Bank of Canada (BDC) announced this month the launch of a new $400 million fund, aimed at investing in and supporting Canadian climate-tech and clean-tech firms.
• The launch of the new Climate Tech Fund II brings BDC’s commitments in the sector to $1 billion, following the creation of BDC’s Cleantech Practice’s $600M Fund I in 2018, which sought to address the lack of risk capital for the commercialisation and scale up of Canada’s clean-tech and climate-tech industry.

Nuveen launches a new global timberland strategy

• Nuveen, the global investment manager with over $1 trillion in Assets under Management (AuM), announced the launch of the Nuveen Global Timberland strategy.
• The strategy seeks to provide investors with targeted exposure to sustainable timberland investments in core geographies, including the US, Chile, Uruguay, Canada, New Zealand, and Australia.
•  Commenting on the launch, Martin Davies, Head of Nuveen Natural Capital, said:
  • The strategy will offer clients access to quality timberland assets with compelling growth and sustainability central to the investment thesis.
  • The launch is our latest step in bolstering our first-class real assets offering for clients, at a time when global investor demand is growing rapidly.
• Timberland is an intrinsic investor in natural capital assets. With trees storing carbon it is a proven and low-cost technology to remove greenhouse gas emissions from the atmosphere.
• As economies transition to low carbon, sustainable timber is a crucial material in replacing carbon intensive steel and concrete in building construction.
• Global demand for timber is expected to grow by up to 200% by 2050, the Wuppertal Institute for Climate, Environment and Energy points out, owing to increased demand from a continued growth in global population and per capita income, presenting a compelling return opportunity for timber production.
• The investments, Nuveen states, will target a net total return of 5% to 7% annually from the sale of timber, land sales, carbon offsets, conservation easements and the natural appreciation of the assets, with a targeted 2% to 3% annual cash yield. It offers a unique global exposure, blending a stable US dollar return profile with access to the potential for high returns, uncorrelated strategies outside of the US.

Macquarie Asset Management makes €100 million debt investment in renewable energy portfolio developer

• Macquarie Asset Management, on behalf of its institutional clients and managed funds, including the Macquarie Green Energy Debt Fund, has provided €100 million of debt financing to Green Bidco SpA, the controlling company of Falck Renewables SpA Group (Falck Renewables).
• Falck Renewables is a developer, owner, and operator of renewable energy plants in Europe and the US, with an existing portfolio comprising 62 wind, solar, waste-to-energy, biomass, and energy storage projects representing 1,420 MW of combined capacity. 
• Falck Renewables estimates that the portfolio avoids approximately 550,000 tCO2e in greenhouse gas emissions per annum; equivalent to powering more than 814,000 UK households with clean energy. These outcomes align with the net zero ambitions of the jurisdictions Falck Renewables operates within.

Louisiana to remove $794 million from BlackRock funds over ESG drive

•  “Louisiana will pull $794 million out of BlackRock Inc’s funds“, state treasurer John Schroder has said, citing the asset management giant’s push to embrace ESG investment strategies.
• According to a statement from the Treasury, the divestment comes in response to reports that “BlackRock has urged companies to embrace net zero ESG investment strategies,” which would harm the state’s fossil fuel industry. Louisiana is a top-10 crude oil producing state, and the third largest US producer of natural gas.
• The US state has already withdrawn $560 million from the funds to date
• While environmentalists have protested that the world’s largest asset manager does too little to press for change at fossil fuel portfolio companies, Republican politicians have accused it of boycotting energy stocks.

Orchard Street announces first close of £400m impact fund for decarbonising buildings

• Commercial property investment manager Orchard Street, which manages retail units, offices and industrial facilities worth more than £4bn has launched a £400m impact and decarbonisation fund, which has seen more than £90m committed in the first phase to help local communities decarbonise buildings.
• The impact fund will focus on decarbonising existing buildings through refurbishment, investing in local communities through place-based models and making buildings healthier by improving air quality and wellness amenities.
• The impact fund will be linked to the firm’s sustainability endeavours. Orchard Street has confirmed that it is linking 30% of its performance fees to the achievement of the Fund’s societal and environmental impact objectives.
• Last year, the company unveiled a pathway to its net-zero ambitions. The pathway includes two new commitments – to reach net-zero across corporate and landlord emissions and refurbishments by 2030 and to reach net-zero for occupier emissions and fit-outs by 2040.

Fund manager Hy24 closes €2bn clean hydrogen infrastructure fund

• Fund manager Hy24 Partners has closed what it claims to be the world’s first infrastructure fund exclusively investing in the whole clean hydrogen value chain, to new investments at €2 billion ($1.94 billion).
• The fund, launched a year ago, is focused on scaling up hydrogen technologies. Hy24 is a joint venture between clean hydrogen investment firm FiveT Hydrogen and European private equity firm Ardian.
• The fund’s portfolio of projects will be across Europe, the Americas and Asia and focus on upstream projects such as renewable and low-carbon hydrogen production and downstream projects such as refuelling stations.
• So-called green or clean hydrogen, made by using renewable energy to power electrolysers to convert water, is being backed by many governments for vehicles and energy plants, but it is currently too expensive for widespread use.

PIMCO calls for more ambitious, material goals for sustainability-linked bonds

• The rapidly growing SLB market, and SLB issuers would benefit from the incorporation of more ambitious performance metrics and sustainability goals, according to fixed income investment manager PIMCO.
• In a post by PIMCO ESG Research Analyst Samuel Mary, Portfolio Manager Ketish Pothalingam and ESG Research Analyst Juan Rojas, the fixed income manager outlined the drivers of the dramatic growth in SLBs. Drivers included: investor interest in aligning their financial goals with sustainability benchmarks, the facilitation of this growth, the 2020 release by the International Capital Market Association (ICMA) of voluntary guidelines – Sustainability-Linked Bond Principles – and the overall integrity of the SLB market.

Bloomberg launches global aggregate green, social, sustainability bond indices

New benchmarks have been established for bonds financing projects with environmental and social benefits. Bloomberg announced the launch of the Bloomberg Global Aggregate Green, Social, Sustainability Bond Indices; further growing its offering of fixed income ESG indices.   

The indices utilise the flagship Bloomberg Global Aggregate Index, the Bloomberg Sustainable Finance Group’s green, social and sustainability bond indicators, and fields that show alignment with ICMA’s Green Bond, Social Bond and Sustainability Bond Principles and Guidelines.

RepRisk launches first-of-its-kind biodiversity risk tool

ESG data science firm RepRisk and the Integrated Biodiversity Assessment Tool (IBAT) Alliance collaborated to unlock biodiversity insights via RepRisk Geospatial Analytics, which launched this month. .

An extension of RepRisk’s flagship product, the RepRisk ESG Risk Platform, Geospatial Analytics facilitates robust biodiversity risk assessment for market practitioners and solves common pitfalls around quality and availability of both biodiversity and proximity data.

Supply chain visibility platform project44 raises $80 million to build scope 3 measurement system

Supply chain visibility platform project44 announced this month that it has raised $80 million, with funding aimed at driving initiatives which include measuring and mitigating Scope 3 supply chain emissions from all modes of transportation.

The funding round was led by Al Gore’s climate-focused investment firm Generation Investment Management and A.P. Moller – Maersk parent company A.P. Moller Holding. The financing values project44 at $2.7 billion.

One of the key initiatives for the company following the funding round will be the development of a system for measuring Scope 3 supply chain emissions across all regions and modes of transportation.

EY and Microsoft partner to develop decarbonisation and ESG data solutions

EY and Microsoft announced an expanded alliance for the development of ESG data management solutions, aimed at supporting clients’ operational decarbonisation and net-zero goals. The collaboration comes as both EY and Microsoft work to build out their own sustainability and climate focused capabilities and solutions for clients.

Last year, Microsoft unveiled Cloud for Sustainability, aimed at enabling companies to more easily and effectively record, report, reduce and replace their emissions through Software as a Service (SaaS) tools.

McKinsey’s new Sustainability Academy helps clients upskill workers for the net-zero transition

“To help our clients reach their sustainability and broader ESG goals, we have launched Sustainability Academy, a capability-building program that helps organisations better equip their talent for the net zero transition”, McKinsey.

The programme was designed by consultants from McKinsey Sustainability and learning specialists from McKinsey Academy – their capability building centre of excellence – and follows a simple approach: acquire, apply, and sustain.

Microsoft launches solutions enabling Scope 3 emissions tracking & analysis

Microsoft unveiled a series of new sustainability-focused digital solutions, building out the capabilities of its Microsoft Cloud for Sustainability offering. The enhancements include tools to help companies improve Scope 3 emissions tracking and sustainability data management.

COP27 (6-18 November, Sharm el-Sheikh, Egypt)

• “The hosting of COP27 in the green city of Sharm El-Sheikh this year marks the 30th anniversary of the adoption of the United Nations Framework Convention on Climate Change.”
•  “In the thirty years since, the world has come a long way in the fight against climate change and its negative impacts on our planet; we are now able to better understand the science behind climate change, better assess its impacts, and better develop tools to address its causes and consequences.”
• Additional details of COP27 – event currently underway

Reuters ESG Investment Europe 2022: Minimize Risk. Maximize Returns. Mobilize ESG. (22-23 November 2022; Leonardo Royal - London):

• More than 300 senior decision-makers from all corners of the ESG investment ecosystem will be brought together, for the Reuters ESG Investment Europe 2022 event.
• The focus will be on delivering practical solutions to industry-wide challenges holding the financial community back from full ESG integration capable of delivering low-risk, high-return, and purpose-driven investment strategy.  
• Additional details of the Reuters ESG Investment Europe 2022 event and a link to register

Cleantech Forum North America 2023 (23-25 January, Palm Springs):

• After two successful decades as Cleantech Forum San Francisco, the name of the flagship forum has been changed to better reflect what it has become established as – namely, the annual opportunity for all of the North American innovation ecosystem to get together.
• Theme: from commitments to actions – the sprint to net zero is on. The theme will inspire a research-led agenda where specialists discuss the big ideas with the power to deliver a cleaner, cooler world.
• Additional details of the Cleantech Forum North America and a link to register

• Rahel Haque, Vice President, Climate and ESG Capital Markets
• Tom Cascales, Associate, Climate and ESG Capital Markets
• Vishal Saxena, CFA, Associate, Climate and ESG Capital Markets

*For any unfamiliar terms used within this article please refer to our Insights glossary.