Hong Kong-headquartered alternative investment firm, PAG, announced this month the establishment of an inaugural sustainability-linked credit facility to support the funds managed within its private debt strategy.
While the exact terms of the facility – including its size, tenor and incentivised margins – remain confidential, the Australia and New Zealand Banking Group (ANZ) team described it as “the largest sustainability-linked facility for a private credit fund in Asia Pacific".
The bank acted as joint sustainability coordinator (JSC), alongside Mitsubishi UFJ Financial Group (MUFG), National Australia Bank (NAB), Société Générale Group (SocGen) and United Overseas Bank (UOB).
A key feature of the facility links payable interest rates to the debt fund’s sustainability performance.
To benefit from a reduced rate, various key performance indicators (KPIs) must be achieved, including: the accomplishment of climate-related milestones by borrowers during the debt fund’s loan terms; the completion of ESG-focussed training both by borrowers and PAG’s investment teams; and measurable improvements in ESG-related management practices by both of these parties.
Discussing the deal, Mara Chiorean, director of Sustainable Finance at ANZ told FinanceAsia, “The facility is a reflection of ANZ’s commitment to support our customers’ transition."
“Sustainable finance can play a critical role in catalysing and facilitating net zero and nature-positive outcomes.”
In November 2022, the bank announced a commitment to offer at least A$100 billion ($67.56 billion) in sustainable solutions by 2030, to support clients’ sustainability transitions. This allocation brings the bank’s total sustainable finance commitment to A$166 billion since October 2015, Chiorean confirmed.
The ANZ team is witnessing raised awareness across environmental, social and governance (ESG) – particularly in relation to climate action – by Asia’s private sector, she told FA.
“With regulators and investors increasing their attention towards ESG issues, this trend will only accelerate. This is especially the case in terms of disclosure requirements,” she said, referring to the mandatory climate reporting recommendations put forward by Singapore earlier this month.
“Our recently closed transaction with PAG is a great example of successful integration of ESG considerations into business practice,” commented Florence Coeroli, head of Asset-Backed Products for Apac at SocGen.
“We are clearly witnessing an increasing focus on ESG and sustainability across many different industries, including fund management, in the Asia Pacific region,” she told FA.
Amanpreet Singh, deputy head of ESG Finance for Apac at MUFG Bank agreed that there had been “a significant surge” in ESG-related developments across Asia’s private sector.
“This shift is driven by a growing awareness of the potential risks associated with unsustainable practices and the desire to generate long term value while aligning with global sustainability goals,” Singh said.
MUFG has committed to arranging JPY35 trillion ($247.38 billion) in sustainability-related financing by 2030.
Sustainable momentum
Having emerged as an alternative venue for capital allocation after the global financial crisis (GFC), private credit has drawn significant investment for its offer of attractive yield and portfolio diversification.
Asia’s private credit market has grown by almost 30 times in the last two decades, accounting for over $90 billion in assets under management (AUM) as of June 2022. However, according to data cited in March by the Monetary Authority of Singapore (MAS), this represents just 6% of the global total, and indicates the sector’s regional growth potential.
In the sustainability space, a February report by S&P Global predicts that Apac’s green, social, sustainable, and sustainability-linked bond (GSSSB) market will grow by over 20% in 2023, to reach a total value of around $240 billion. Research published in March by the International Capital Markets Association (ICMA), revealed that in the five years up to 2022, sustainable issuance in the region had already increased by five-fold.
“While market conditions have led to some pause in activity across GSSS capital market bond issuance, borrowers have remained focussed over the past 12-18 months on sustainability within the loan markets,” ANZ’s Chiorean said.
“We are optimistic that for 2023, the sustainable finance volumes will have a strong pick-up,” she added.
Globally, PAG manages investments assets exceeding $50 billion, on behalf of over 300 global institutional investors.
The firm declined to comment beyond its press release. Meanwhile, UOB was not able to comment prior to publication and NAB did not respond to requests for comment.
