As we noted here, environmental, social and governance (ESG) factors are becoming increasingly relevant across the finance markets and have impacted a range of financial instruments. The European leveraged finance market has traditionally been immune to outside influence, yet as investors, banks, sponsors and corporates are themselves becoming increasingly aware of and impacted by ESG, so the leveraged markets are having to respond and adapt.
With the backdrop of the European Green Deal and related sustainable finance initiatives, participants in the leveraged finance markets have identified opportunities to incorporate ESG into loan and high-yield documentation. By way of example:
Due diligence: at the outset, an assessment of ESG policies and procedures as part of early-stage disclosure and due diligence exercises, discussions with management and road-show presentations.
Information reporting: issuer/borrower-specific reporting as to compliance with ESG policies and procedures, together with potentially broader reporting requirements tied to applicable legislation or bespoke key performance indicators (KPIs).