The Taxonomy Regulation will enter into force on 12 July 2020. Designed to establish clear sustainability criteria for investments it has been described, by Finnish MEP Sirpa Pietikainen, as "probably the most important development for finance since accounting".
Inspiring therefore to see the fund finance industry at the forefront of sustainable finance. In what has been reported as "one of the most remarkable transactions of 2020" global investment firm EQT last month completed the first multi-billion ESG-linked subscription credit facility. The €5 billion facility was led by BNP Paribas and SEB with the support of a syndicate of 17 banks. Whilst sustainability linked loans at a corporate level have gathered pace in recent years, this deal raises the bar even higher and firmly into the fund financing market and the PE world. The deal incorporates ESG targets across the fund's portfolio companies in numerous sectors by coupling the bridge facility with an interest rate mechanism designed to accelerate the portfolio companies' ESG performance.
The KPIs across the portfolio companies will be reported on quarterly and audited annually and include:
- appointing a board member with responsibility for ESG
- implementing an ESG strategy with a specific target (to include the reduction of greenhouse gas emissions where applicable)
- ensuring 40% female board composition within 2 years of acquisition
- increasing the use of renewable energy
The syndicate of banks supporting the deal is a positive sign for the fund finance industry, particularly in the current economic climate, and shows lender commitment to integrating ESG metrics into fund financing products.
The very large size of this transaction and the strong support it received from a wide group of international lenders, despite the difficult market conditions of the past few months, is more evidence of the capital markets' shift towards sustainability. Ultimately all finance should be sustainable.