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What does ESG mean for private credit?

Randy Schwimmer
Vice Chairman, Co-Head of Senior Lending
Mickey Weatherston
Head of Sustainability and ESG Integration
Churchill ESG leadership

ESG’s impact on investor and manager behavior has changed the way we look at the world. Churchill’s Randy Schwimmer and Mickey Weatherston address what it means for private credit.


While credit managers are typically not involved in the direct management of businesses they finance (an exception being impact investing), screening out companies for ESG reasons is a powerful tool for lenders.

As lender checklists become more sophisticated, demands on borrowers will grow. Larger companies, particularly broadly syndicated loan issuers, can be incentivized with spread discounts for meeting certain ESG targets.

Using ESG criteria at the beginning of borrower due diligence is critical to establishing baselines against which to measure future performance.

Building on TIAA’s history of five decades of responsible investing, Churchill began partnering with Nuveen, the investment manager of TIAA, in 2017 to integrate ESG factors into its investment process.

All elements of ESG due diligence (overall ESG rating, reputational risk screening, climate physical and transitional risk assessment) are key in evaluating if the portfolio company meets Churchill’s ESG standards.

We use a proprietary ESG rating tool, developed in partnership with Nuveen’s responsible investing team, that helps us assess the key ESG risks and opportunities for a given deal.

 

Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well. ESG integration incorporates financially relevant ESG factors into investment research in support of portfolio management for actively managed strategies. Financial relevancy of ESG factors varies by asset class and investment strategy. Applicability of ESG factors may differ across investment strategies. ESG factors are among many factors considered in evaluating an investment decision, and unless otherwise stated in the relevant offering memorandum or prospectus, do not alter the investment guidelines, strategy or objectives.

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