The Principles for Responsible Investment (PRI) has teamed up with investment consultancy Redington and released a guide aimed at improving stewardship practices within private debt investing.
The report, Stewardship in private debt: A guide for general and limited partners, provides practical tools and strategies for both general partners (GPs) and limited partners (LPs) and offers guidance on integrating stewardship throughout the investment lifecycle.
Drawing on interviews and surveys of more than 120 private market participants, the guide offers a range of tools and insights for investors to engage borrowers, lenders and sponsors, covering the following areas: understanding stewardship in private debt, spectrums of influence in private debt, challenges facing private debt investors, and integrating stewardship into the investment lifecycle.
Participating investors included APG Asset Management, KKR and M&G.
David Atkin, chief executive officer of the PRI, said: “The private debt market has expanded significantly in the past 15 years. But for this highly complex asset class, lenders face significant barriers to stewardship that do not necessarily exist elsewhere.
“The integration of sustainability factors into credit risk assessments is becoming more common, and industry-wide initiatives are making tangible progress in improving access to reliable data and driving convergence around standardised templates.”
Atkin added that the paper is also designed to illustrate stewardship’s role in reducing risk and supporting value creation, thereby improving the borrowers’ creditworthiness.
The PRI previously published reports on private debt in 2019 and 2023 and comes at a time of growing awareness among private equity investors of the role sustainability can play in increasing revenue growth.
Last month, the PRI oversaw a survey of 85 investors from around the world, which found that “sustainability value creation initiatives” had driven an estimated 6-7% exit-multiple uplift at holdings.
Other initiatives designed to support private debt investors have included the Institutional Investors Group on Climate Change (IIGCC) last year launching its own private debt guidance.
Looking ahead, the PRI guide stressed a need for greater collaboration between lenders and sponsors, pointing to a lack of standardisation. Additionally, the guide stated that while data quality in private markets has improved, it remains limited.
“We encourage further work to improve data coverage across private companies and to help both private equity and private debt GPs determine which data points are the most financially material across different sectors and company types,” the guide concluded.
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