Key Takeaways
- • Benefit Street Partners (BSP), a credit-focused alternative asset manager and wholly owned subsidiary of Franklin Resources, and ESG adviser Malk Partners have published a co-authored white paper titled "ESG Integration in Private Credit."
- • The paper offers a practitioner's guide to embedding ESG criteria into a manager's initial underwriting diligence, alongside operational, legal, and commercial diligence.
- • BSP argues that partnering with an independent ESG specialist allows ESG findings to be presented without bias, which it says can improve risk-adjusted investment decisions and build better ESG data.
- • The white paper includes supporting case studies and ESG criteria for companies, and examines asset-level versus industry-level ESG risk analysis.
Summary
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 in the private credit investment process, according to the publication.
The white paper, "ESG Integration in Private Credit," is positioned as a practitioner's guide to incorporating ESG into a manager's initial underwriting diligence. It argues that 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 Managing Director Allison Davi said private credit managers have struggled to integrate ESG meaningfully given limited ESG data and less influence or information access than controlling equity owners. BSP's approach is to partner with an independent ESG specialist that can diligence opportunities alongside its investment team and present findings without bias, with the aim of developing better ESG data to drive constructive dialogue and investment decisions.
Chase Jordan, Vice President at Malk, described ESG as having evolved from a fringe consideration into a mainstream method of mitigating operational risk and capturing value, and said creditors are increasingly working alongside PE sponsors and management teams on these practices. Malk reviews risk factors and conducts asset-level analyses to give credit managers a more comprehensive view of a company's risk profile.
BSP partnered with Malk to establish consistent and rigorous underwriting practices, enhance existing monitoring, and position its ESG commitment as a competitive advantage. The white paper examines why asset-level ESG risk evaluation is often preferable to industry-level analysis, how company-specific ESG analysis broadens credit managers' perspective on investment risk, and the future state of ESG in private credit along with the challenges the industry faces.
The white paper, "ESG Integration in Private Credit," is positioned as a practitioner's guide to incorporating ESG into a manager's initial underwriting diligence. It argues that 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 Managing Director Allison Davi said private credit managers have struggled to integrate ESG meaningfully given limited ESG data and less influence or information access than controlling equity owners. BSP's approach is to partner with an independent ESG specialist that can diligence opportunities alongside its investment team and present findings without bias, with the aim of developing better ESG data to drive constructive dialogue and investment decisions.
Chase Jordan, Vice President at Malk, described ESG as having evolved from a fringe consideration into a mainstream method of mitigating operational risk and capturing value, and said creditors are increasingly working alongside PE sponsors and management teams on these practices. Malk reviews risk factors and conducts asset-level analyses to give credit managers a more comprehensive view of a company's risk profile.
BSP partnered with Malk to establish consistent and rigorous underwriting practices, enhance existing monitoring, and position its ESG commitment as a competitive advantage. The white paper examines why asset-level ESG risk evaluation is often preferable to industry-level analysis, how company-specific ESG analysis broadens credit managers' perspective on investment risk, and the future state of ESG in private credit along with the challenges the industry faces.
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