Leveraged debt investors push borrowers on ESG disclosures

LONDON, Feb 13 (LPC) - European leveraged loan and high-yield bond buyers are pushing companies they invest in to have a standard disclosure on environmental, social and governance, a move that is likely to turn up the heat on ESG adoption in the leveraged finance market.

The European Leveraged Finance Association, whose members include money managers such as Allianz Global Investors and Janus Henderson Investors, is planning to develop an agreed set of ESG disclosure topics that investors would expect issuers or borrowers to report on publicly.

“We find that investors all ask very similar questions. There is definitely an opportunity to streamline that and make it a more efficient process for everyone involved,” said Tina De Baere, ESG committee member of ELFA and Head of ESG at Cairn Capital.

The standardised ESG disclosure would ideally become part of marketing materials or deal documentation, presented to investors upfront in the syndication process, De Baere said.


The use of ESG standards in the European leveraged finance market is still in its infancy and it is rare for borrowers or issuers to address ESG issues in their marketing materials.

Investors for the US$290bn market in Europe only have the opportunity to ask about ESG questions in deal roadshows or lender presentations. For any more specific questions, investors need to send ESG questionnaires to companies individually.

“Imagine the current situation from the perspective of the borrowers. They are receiving different ESG questionnaires from different investors. It’s not a very efficient process at the moment,” said De Baere.

Most importantly, it’s up to the companies to decide whether they want to answer or not. In a benign credit environment, borrowers or issuers normally don’t bother, given the loan or bond deals will inevitably get sold or oversubscribed.

“Most of the time, they don’t reply or just refer you to their websites,” said a loan investor. “For more in-depth questions such as the ratio of male and female employees, the equality gap of salary, I doubt you would able to get any answers from them.”

Companies are also cautious about how much information to share with investors.

“Lawyers will need to sign off for everything they say. And no company would say we burn the earth and we scratch the world,” the loan investor said.


Diversity, sustainability and climate change have become increasingly important metrics to guide credit investors’ investment decisions. In the latest ELFA survey that interviewed 100 investors, about 72% of respondents already address ESG considerations as part of their investment process on at least half of their fixed income assets.

The survey also revealed ESG topics that European credit managers care most. They include greenhouse gas emission, details on off-balance sheet environmental liabilities, compliance with labour and human rights standard, cybersecurity risk and management compensation structure.

US investors are also catching up on ESG. The Loan Syndication and Trading Association developed an ESG questionnaire early this month that companies can fill out when seeking financing.

While the completion time frame for the standardised disclosure in Europe is not yet known, it’s one of the top priorities for ELFA this year.

“We plan to have our first working group in March with selected credit analysts and leveraged finance issuers, then we will follow up with credit rating agencies, another important stakeholder in the industry,” De Baere at Cairn Capital said.

Growing pressure from investors would force leveraged borrowers and issuers to face ESG issues, and bankers are optimistic that companies will accommodate such demand.

“Everyone knows the world is moving that way, and it now comes to the leveraged finance market,” a leveraged finance head said. “Standardised information requests could be the first step and I believe borrowers would adopt it.” (Editing by Christopher Mangham)