Rising demand from LPs is propelling ESG to the forefront of the private credit agenda. But the real question lies in how robust these strategies are. 

Several market sources pointed out that ESG key performance indicators (KPIs) tailored to individual companies make deal benchmarking nearly impossible.

Meanwhile, none of the fund managers polled by 9fin had implemented ESG-linked covenants with hard contractual repercussions in cases of non-compliance.

9fin found that the absence of useable and comparable ESG data across sectors, as well as the private nature of deal documentation, makes it difficult to accurately assess progress on ESG matters in private credit. 

The could call into question the narrative that the bilateral relationship between lenders and borrowers provides, in the words of one source, private debt investors with a “unique opportunity to effect change”.