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Financing the Economy

Global study examines the impact of Environmental, Social and Governance (ESG) on the private credit market.

The rapid development and maturing of the global private credit industry is presenting its leading players with a complex set of strategic choices. Increasing competition, greater regulatory scrutiny, an uncertain economic environment and an increasing appetite for more sophisticated products and borrowing terms, mean that lenders need to have a full view of the risks and opportunities available to them in every market and on every transaction.

The 2021 edition of Financing the Economy, a global research report, produced by the Alternative Credit Council in partnership with Allen & Overy, highlights the expanding role of ESG in the investment strategies of private credit managers.

According to this year’s analysis, almost 75% of private credit managers have integrated ESG into their investment strategies, and are using ESG principles as a central focus of their approach to due diligence, borrower engagement and investor reporting.

Financing the Economy, which reflects the views of 57 leading private credit firms that collectively manage more than USD600 billion, also draws on insights derived from one-to-one interviews and a series of case studies that highlight some of the year’s most innovative projects.

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Report highlights

  • ESG-focused investment strategy. 74% of private credit managers are integrating ESG into their investment strategy, and this is now a core part of their approach towards due diligence, borrower engagement and investor reporting.
  • The data challenge. 59% of respondents said they use a common template/questionnaire to gather relevant ESG data on the borrowers, recognising that the basis of ESG analysis lies in high quality data.
  • Embedding ESG into private credit products. One third of firms reported offering ESG-focused private credit products that incentivise businesses to become more sustainable. Such products are likely to become more prevalent, with a further 28% of respondents planning to make loans with ESG-linked financial incentives in the future.
  • Rise of thematic ESG funds. 13% of respondents are raising thematic ESG investment funds based on their conviction that investors will increasingly seek asset managers who can provide more developed ESG-linked investment strategies. Themed investing allows investors to address ESG issues by investing in companies actively addressing or contributing to providing solutions to these issues.
  • Adding value. 45% of respondents see private credit managers’ ability to provide ESG advice and guidance to borrowers as the main ‘value add’ offered by the asset class.
  • State of the private credit market. 26% of firms describe their most common loan size as greater than USD100million, up from 10% last year, as the growth of larger deals is likely to continue. A higher proportion of managers are also investing in Asia and specialty finance than in previous years.

Financing the Economy 2021

Download the report to find out how direct lenders are integrating sustainability principles into their investment strategies.

 

Private credit: Overview of our services

The continuing rapid development and maturing of the global private credit industry is presenting its leading players with an ever more complex set of strategic choices. Increasing competition, greater regulatory scrutiny, an uncertain economic environment and an increasing appetite for products that are more sophisticated and borrowing terms, mean that lenders need to have a full view of the risks and opportunities available to them in every market and on every transaction.

Our expertise across the capital structure, geographic spread and advice for direct lenders and sponsors gives us and our clients an unparalleled perspective of the market and a deep and practical understanding of the most significant, legal, regulatory and commercial issues facing private credit managers across the world’s leading markets.

Our global team of lawyers work with private credit managers to design and implement highly complex and innovative cross-border alternative investment structures, and the deals done (domestic and international) via those structures.

We have extensive experience in advising on, and executing deals encompassing all major private credit strategies including deep product knowledge across high yield bonds and loans under both English and New York law.

 

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