Per this article in Private Equity News, ESG is now included in most debt financing deals.
The inclusion of ESG in private loan documents is designed to incentivize companies to improve.
The “ESG margin ratchet” is now commonplace in debt deals and provides for tiered pricing that goes up or down, depending on the borrower achieving ESG performance goals.
The market is generally working off a 12-month lookback.
Net, a company seeking debt financing, or a lowering of its debt financing cost, should consider the impact of that 12-month lookback and start planning an ESG program at least a year ahead of its need for financing or desire for better debt financing pricing.