ESG integration in Leverage Finance: where do we stand?

Until recently, the lack of available, reliable, and comparable data for HY corporates has delayed the incorporation of ESG factors in the HY bond asset class. However, according to S&P, from the beginning of 2019 to June 2020, HY ESG-related AUM skyrocketed from USD 1.7bn to USD 46.3bn, with the number of ESG-based HY funds increasing from 7 to 43. This dramatic growth in AUM resulted largely from rebranding of existing funds in conjunction with amending fund prospectuses to reflect adoption of sustainable investing strategies.

Parallel to this, a recent publication of the main trade associations in the Leveraged Finance sector (the ELFA, the LMA together with the PRI), the “Company Advisers on ESG Disclosure in Leveraged Finance Transactions” guide should help HY issuers improve their ESG practices and transparency, as well as give better ESG information to HY investors (see Natixis article on the subject).

In this evolving context, Natixis GSH conducted an investor survey with the purpose of assessing the level of ESG incorporation by HY investors and the strategies that are being currently developed.

We are pleased to share with you the results of our survey and our further investigation on ESG progressive integration in Leverage Finance (including market data on GSS HY bonds, HY ESG bond funds, HY Sustainability-Linked TLB transactions and ESG CLOs).