EQT Managing Director Adam Larsson and Debevoise & Plimpton Partner Thomas Smith discuss the implementation and challenges of ESG capital call facilities. Topics include negotiating KPIs, managing ESG compliance, retrofitting ESG financing, and predictions for the future of ESG financings.
EQT implemented market-leading ESG-linked subscription line financing with KPIs focused on gender equality, renewable energy, and sustainable governance.
EQT's decision to implement ESG-linked financing aimed to drive positive change in portfolio companies and align financing with their values and strategy.
Deep dives
Overview of the Financing with ESG Links
Adam Larson, managing director at EQT, and Tom Smith, a partner at Debevoise & Plimpton, discuss the market-leading ESG-linked subscription line financing implemented by EQT. The financing includes two credit facilities: one for the equity fund and another for the infrastructure business line. These credit facilities have KPIs focused on gender equality on boards, renewable energy, and sustainable governance. The pricing mechanism of the financing is designed to incentivize portfolio companies to improve their ESG performance.
Motivations for Implementation
EQT has a long-standing commitment to ESG as part of its overall strategy. The company has a dedicated ESG team and views sustainability as a natural part of its vision to be a reputable investor. The decision to implement ESG-linked financing was not new but rather a continuation of their approach. The motivation behind it was to drive positive change in portfolio companies and to align their financing with their values and strategy.
Implementation Process and Lessons Learned
Implementing ESG-linked financing required close collaboration between EQT and the banks they work with. Clear communication and discussing the new elements early on helped establish a smooth process. EQT emphasized the need for a firm-wide strategy and clear KPIs that align with their overall ESG goals. Reporting and gathering data were seen as opportunities for value creation. While the process had some complexities, the experience gained from the first implementation made subsequent implementations easier. Going forward, a separate role or third-party service provider for reporting and verification may become increasingly common.
In this episode of Fund Finance Friday: Industry Conversations, Cadwalader partner Nathan Parker is joined by EQT Managing Director Adam Larsson and Debevoise & Plimpton partner Thomas Smith to discuss the market-leading ESG linked capital call facilities put in place by EQT in the second part of last year. For more information, visit fundfinancefriday.com
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