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ESG becoming central to fund finance

fund financingSustainability is rising to the top of the agenda for fund financing deals, say leading advisors, but setting hard metrics and stretching KPIs can still be a challenge.

Speaking to Funds Europe for its report on fund finance trends, experts were unanimous in seeing sustainability as a key dimension in fund financing. “Managers are increasingly looking for ESG to be one of the initial discussion points when considering how to structure their subscription facilities,” said Georgina McCreadie, assistant director, funds advisory, at Deloitte.

The role of sustainability is a key trend identified in Funds Europe’s report, ‘Trends in fund finance’, based on in-depth interviews with fund experts and created in association with RBS International.

ESG targets and conditions are also becoming more rigorous, according to the report, with funding terms increasingly offering not only a margin reduction for hitting ESG targets, but higher costs if they should fail. But some financing deals lack detail on ESG targets, according to Shelley Morrison, head of fund finance at abrdn. “We see a lot of good intention from funds and lenders, but we also see credit facilities where the ESG framework is documented, but the specific metrics of the reporting are not,” she said.

The role of consumers in driving ESG expectations is also a key factor raised by contributors to the report, as well as the ongoing effort to agree on common standards in a market that spans multiple jurisdictions.

Read the full report now.

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