E is for Earth Day… and ESG – April 2022 | Issue 172 – ESG for Earth Day | Cadwalader, Wickersham & Taft LLP

Last week I was fishing with my kids over spring break, and my 8-year-old daughter, Parker, engaged me in a thought-provoking conversation that really stuck with me when I returned to the office this week. “Dad, you know Earth Day is next Friday, right?” she asked me. “What are you doing to help the environment? »

This discussion also came after we watched baby birds hatch in a nest of twigs placed precariously in a spring-themed natural wreath my wife had hung high on our front door in Charlotte. Allison taped a note inside the door that read “Baby Birds!” to remind us all not to open/close the door lest we disturb nature for our newly hatched friends. So, of course, I was doing a lot – I was promoting the conservation of a delicate aviary habitat within the central Charlotte ecosystem. I spent an entire week walking around the house each time greeting visitors and picking up Amazon packages at the front door (my Fitbit watch was beaming with activity because it no longer needed me). encourage movement). This sacrifice was made with her in mind.

It struck me – that’s exactly what the wider ESG movement is about and why I devote so much time to it in my practice. That’s it for Parker’s generation. They will be the beneficiaries of our efforts today. We owe them that.

Earth Day is an annual event every April 22 to promote environmental sustainability. This year’s theme is “Investing in our planet”. In other words, it’s about promoting the “E” in ESG investing.

So how are we?

Investors drive the bus

ESG mandates are transforming the asset management landscape. Investors provide the initiative.

  • 85% of LPs say they have an ESG policy in place in private equity, according to a survey of 100 LPs by Bain & Co. and ILPA. In the same survey, an overwhelming majority of LPs indicated their intention to increase allocations to ESG investments over the next three years. (Details of the survey here).
  • In public markets, 15% of all bond fund flows in 2021 were directed to ESG-labeled funds in the US and Europe, according to Barclays Research estimates. In Europe, almost a third of the universe of public bond funds by AUM is now made up of ESG funds.
  • 72% of investors believe private fund managers are adopting ESG policies due to investor pressure, according to a recent Preqin survey.
  • The vast majority of investors responding to the same survey reported plans to increase or maintain private market allocations.

Together, these indicators suggest that ESG strategies will continue to grow in importance in the allocation of private capital and, therefore, fund financing. Investors are increasing their investments in private markets and thus advocating for greater ESG integration.

Transaction activity is important

The momentum is real, albeit at a somewhat more subdued pace this year given regulatory headwinds and potential greenwashing concerns. That said, we closed 9 ESG subscription lines at Cadwalader last year, totaling over $8 billion in lender commitments. In 2022, we have so far worked on 4 ESG related installations. The vast majority of recent agreements have also had a strong climate change or “green” focus.

The rise of ESG in fund financing has been well documented

In honor of this year’s Earth Day theme, we thought it would be helpful to put together a compendium of ESG material we’ve released over the past few months:

ESG Preparation Guide

Thoughts on the organizational integration of ESG preparation.

Wes Misson on financing ESG funds, parts one and two

A primer published in Private Equity Law Report on the practical application of ESG concepts in fund financing transaction documents.

ESG Reporting and Disclosures: Moving the Industry Forward

A recap of the growing industry attention to standards for reliable ESG data disclosure.

ESG: Regulatory reform on the horizon?

A survey of US and European regulatory initiatives related to ESG investment products.

ESG Lending – The Next Big Wave in Fund Financing

Answer the what, why and how questions of sustainability-linked lending.

Top 10 things to consider when structuring your ESG facility

Discuss the most relevant credit facility terms in the context of ESG facilities.

The ABCs of ESG

A summary of the fundamentals of financing ESG funds.

May you catch more tenders than we caught. Well done and enjoy the outdoors this weekend!

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