New white paper outlines best practices in private credit responsible investment strategies

ESG metrics

Benefit Street Partners (BSP), a credit-focused alternative asset management firm and a wholly owned subsidiary of Franklin Resources, and Malk Partners (Malk), an adviser to private markets on ESG and impact investing, have published a co-authored white paper detailing environmental, social, and corporate governance (ESG) integration and considerations in the private credit investment process.

The white paper, “ESG Integration in Private Credit,” provides a practitioner’s guide to imbuing ESG into a manager’s initial underwriting diligence and demonstrating why applying an ESG approach alongside other operational, legal, and commercial diligence may lead to better risk-adjusted investments. The paper includes supporting case studies and outlines ESG criteria for companies to consider.
 
BSP’s Managing Director, Allison Davi, says: “Private credit managers have faced challenges integrating ESG considerations into the investment process in a meaningful way given the limited ESG data available, as well as not having the same influence or access to information as controlling equity owners. We believe that the best way to integrate ESG into our investment process is by partnering with an independent ESG specialist who can diligence opportunities alongside our investment team and present findings without bias. Utilising this additional information, we can work to develop better ESG data which will drive constructive dialogue and better investment decisions.”
 
“It’s a really exciting time to be working at the intersection of Private Credit and ESG,” says Chase Jordan, Vice President at Malk. “I think ESG is a management system revolution. It has evolved from being a fringe set of considerations to the mainstream way of mitigating operational risk and capturing additional value. The old paradigm of ‘ESG is just an equity owner’s concern’ has successfully been challenged. Creditors are stepping up alongside PE sponsors and management teams to advance these best practices. Malk thoroughly reviews risk factors and conducts asset-level analyses to give credit managers a more comprehensive view into a company’s risk profile, which then results in a more confident investment.”
 
BSP partners with Malk in order to establish consistent and rigorous underwriting practices, enhance existing monitoring efforts, and position its commitment to ESG integration as a competitive advantage. Some of the topics examined in the white paper are:
 
• Why management of ESG risks from an asset-level evaluation is often preferable to an industry-level analysis;

• How company-specific analysis with ESG criteria gives credit managers an expanded perspective on investment risk;

• A view on the future state of ESG in private credit, and the challenges the industry faces.

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Fiona McNally
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