How can ESG-linked funds help your business?

28 Oct 2020

Jon Harvey, Head of Relationship Management at Investec Fund Solutions discusses an ESG-linked subscription facility for Investindustrial.

Why is it such an important time for ESG-linked deals within fund solutions?

It’s very important for all Fund Managers to consider the wider societal impact, as well as financial returns when making investment decisions. Socially responsible investing is being increasingly demanded by investors who want to invest in a way that is not detrimental to wider society and improves environment and social outcomes. 
 
Investors are applying these non-financial factors as part of the analysis process to identify material risks and growth opportunities when assessing Fund Managers. 
 
Environmental, Social and Corporate Governance (ESG) linked facilities are a great way to align the interests of Investors, Fund Managers and Banks through the financing structure.

Our ESG-linked subscription facility for Investindustrial

What does this specific deal look like in simple terms and how does it benefit ESG aims?

A client can work with Investec to develop a set of measurable ESG metrics to monitor their performance. These can be aligned with the client’s long term ESG goals/strategy.
 
We recently provided a €600m ESG-linked facility to Investindustrial, a leading European investment group, in respect of Investindustrial Fund VII. This facility was one of the first European mid-market ESG-linked subscription lines. The facility was structured so that it offers reduced interest payments when specific ESG goals – in areas such as environment, gender diversity and governance – are met.
 
If the Fund’s performance is positive when monitored against these metrics, it can lead to improved economic terms, such as a reduction in margin. Any interest cost savings will be ring-fenced by Investindustrial for investments in carbon reduction initiatives, including the continued development of its portfolio of nature-based carbon reduction projects.
 
We can also work with the client to ring-fence any savings in ESG positive investments charities further boosting the positive impact of the Facility.

Which kinds of clients could a deal such as this help?

Many private equity funds have defined ESG commitments and goals to ensure that they make a meaningful, positive contribution to the environment in which they operate.
 
A deal like this can provide benefits to any fund managers within the private equity sector for whom ESG forms a core part of their culture/strategy.
 
By setting metrics which provide improved economic terms when met, a fund manager creates a strong, positive alignment of incentives, giving the manager additional skin in the game.

Investec has a long-standing commitment to sustainability. Why has the organisation committed to embedding these values into its financial offering?

We aim to provide our clients with profitable, sustainable and impactful solutions. We believe in using our financial expertise to address socio-economic issues and create a more sustainable world.
 
Our Group CEO Fani Titi is a member of the Global Investors for Sustainable Development, a UN panel tasked with driving meaningful action from businesses on issues such as climate and inequality. We aim to do this through financial solutions, as well as community initiatives and transparent reporting.
 
We believe there are six sustainable development areas where we can have an impact. They include industry, innovation and infrastructure; decent work and economic growth; affordable and clean energy; quality education; sustainable cities and communities; and clean water and sanitation. 

What can I do if I’m interested in exploring our options as a business?

What can I do if I’m interested in exploring our options as a business?

Jon Harvey
Tanya dos Santos

Jonathan Harvey

Fund Solutions

Tanya dos Santos

Global Head of Sustainability and Investec Rhino Lifeline

Our specialist Fund Solutions team can help funds and fund managers with flexible, agile and strategic finance solutions.