Q&A with Tina De Baere,
Head of ESG at Cairn Capital and Co-Chair of ELFA’s ESG Committee
What is top of the agenda for the ESG committee?
TdB: The expectations and requirements of our end-investors have evolved in the last two years, so we need to adapt and provide the ESG information they now need. New ESG regulations such as the UK’s new climate-related financial disclosure rules and the EU SFDR are also changing reporting requirements, as is the growing stakeholder pressure to invest in sustainable businesses.
We want to equip ELFA member firms with the tools to advance their ESG investing in the leveraged finance market. We work closely with everyone in the value chain when devising and implementing industry solutions: companies tapping into the European leveraged finance market; Private Equity sponsors, arranging banks, lawyers, credit rating agencies, ESG data vendors, standard-setting bodies and regulators. ELFA plays a vital role in bringing key stakeholders together and this collaboration has proved to be a success.
Our focus is to improve the availability and standardisation of good quality ESG data disclosed by borrowers across the high-yield, broadly syndicated loan, private debt and CLO markets. There is growing scrutiny on investors from global policymakers and regulators, and the risk of greenwashing claims is at the front and centre of investors’ minds.
How are you tackling these issues?
TdB: The ELFA ESG Disclosure Initiative to improve the disclosure of ESG information by borrowers to allow the analysis of the material ESG risks facing a company is a vital tool for our members. We have had a lot of success with our sector specific ESG Fact Sheets, which outline the most material ESG topics for companies in a given sector.
Asset managers use our ESG Fact Sheets as part of their investment process and as an engagement tool with borrowers. We use them at Cairn Capital and send them to borrowers and arranging banks to complete them. Two years ago, not all ESG Fact Sheets would come back completed or in time, however, these days many new issues come prepared with this information at the start of marketing which is very helpful for investors as it provides a solid starting point for any ESG analysis. Seeing the progress, we have helped foster in a short time is fantastic.
ELFA has 62 members today and they value the opportunity to share ideas and experiences with peers through participation in the committees which are very collaborative. For example, one of ELFA’s legal partners Latham & Watkins recently hosted an SFDR breakfast for members where members had a chance to ask questions to legal SFDR experts and share their views with other investors.
What can we expect from the ESG committee over the coming months?
TdB Building on the success of the ESG Fact Sheets we want to ensure ESG information is disclosed to investors throughout the life of an investment. We have devised tools to help members request this via a template letter, for example, that multiple member firms can sign and send to agents and borrowers asking for their commitment to ongoing ESG data disclosure.
And when there are developments in the market that we disagree with as investors - like cases of greenwashing in the view of ELFA members - we make a strong statement to the markets by issuing best practice guides. We are about to publish one for sustainability linked HY bonds.
What insights can you share on ESG disclosure and how will it look in 2-5 years?
TdB: Companies are making significant progress in ESG disclosure and our conversations with borrowers have transformed over the last two years, from ‘what are the material ESG areas for your business?’ to ‘what quantitative metrics are you able to supply to investors?’. In a couple of years, we expect to receive solid annual sustainability reports from most of the borrowers in our market in the same format that only the large, listed equity issuers use today.
What is your vision and ambition for change?
TdB: Our vision is to make it possible for ESG investing to be the standard in the leveraged finance market. Our market is still behind markets such as equities and investment grade, the gap is closing quickly, but we want it to disappear completely. The lack of data and information should no longer be a hindrance to product development.
Why is ESG disclosure so important for investors…?
TdB: Because end- investors want asset managers to report on how they integrate ESG factors into their investment processes and provide ongoing reporting on ESG. Also new ESG regulations (such as the EU SFDR or UK’s climate-related financial disclosures legislation) make ESG reporting compulsory; even if asset managers are not directly in scope of such regulations, some end-investors have started requesting asset managers to report voluntarily in line with new rules regardless.
Because it widens their access to capital. ELFA members (investors) often tell us that they will not be able to invest in issuers with weak ESG profiles, insufficient or incomplete ESG information and controversial business activities. Material improvements for issuers can make their businesses more sustainable and resilient over the long-run and, in turn, make them more attractive and valuable businesses on exit for existing shareholders. Controlling your own narrative on ESG as a business is important and means investors do not have to rely on the assessment of third-party ESG data vendors.
Why did you take on the Co-Chair of ELFA’s ESG committee ?
I am Head of ESG at Cairn Capital and responsible for the firm’s ESG strategy, working closely with various stakeholders including our investment team, shareholders and Board. I felt that some challenges we face as a firm need to be tackled at the industry level, working with our peers. Speaking with one voice results in faster progress. When Cairn became a member of ELFA in 2019 I was swept away by the leadership of Sabrina (CEO) and Malin (ESG Co-Chair) and the launch of ELFA’s ESG Disclosure Initiative and I wanted to help them bring about positive change in our industry.