Sustainability-linked lending will become the norm in private debt transactions, says Amundi | News
Sustainability-linked lending is set to become the market norm in private debt transactions, as it is an essential tool to promote impact investing strategies, said Julien Paycha, head of private debt at companies at Amundi, during a breakout session at the BAI Alternative Investor Conference. in Frankfurt this week.
The market share of sustainability-linked loans has tripled between 2020 and 2021, he said, adding: “I can see a not too distant future where most if not all private debt transactions will be issued in the form of sustainability-linked loans”.
Private debt strategies can make an impact through sector exclusion, due diligence, setting contractual targets, and sustainability-linked lending can help in this regard, through engagement, reporting and data.
Amundi’s portfolio of real assets – worth 62 billion euros out of a total of 2 billion euros – is invested in private debt (8.5 billion euros), real estate (41.9 billion euros), multi-asset (10.4 billion euros), private equity (1 billion euros), infrastructure (427 million euros) and impact investing (440 million euros) .
In the field of private debt, he targets the pure mid-market senior debt segment with transactions in companies with an EBITDA above 40 to 45 million euros.
The French asset manager has three corporate private debt funds that have either an ESG strategy or an impact strategy in which “last year alone almost 70% of investments incorporated ESG indicators – they were actually sustainability-related loans,” Paycha said.
“If we look at the deals we closed at Amundi in 2021, we see that on average sustainability-related lending incorporated two or three KPIs [key performance indicators]“, with the Sustainable Development Goals (SDGs) being the chosen main KPI, he said.
Amundi Senior Impact Debt IV, one of the firm’s impact investment funds, has already raised €725 million since its inception last September to reach a target of €1 billion by the end of this year and is attracting increased interest from insurance companies and pension funds. , Paycha told IPE after the conference session.
It is the first impact fund – an Article 8 fund of the Sustainable Finance Disclosure Regulation – with portfolio companies that must complete a carbon footprint assessment and an aligned action plan on the Paris Agreement on the three perimeters to reduce their carbon footprint.
“The fund will contribute and cover part of the costs of a carbon footprint assessment […] and we expect portfolio companies to update their valuations annually,” he said.
According to Paycha, private debt is well suited for an impact strategy in medium-sized deals because it involves a close relationship with a company’s management and is a long-term instrument.
However, he pointed to research from Phenix Capital, a Dutch impact investing consultancy, showing that private debt impact strategies make up 20% of the impact universe, and impact strategies in 2020 represented nearly 5 billion euros, 20% of which was devoted to Europe.
“Right now, impact investing is small, but I think it’s about to become a lot bigger because it matters,” he said, referring to the commitments of the COP21 in Paris and the recent spike in greenhouse gas emissions.