Search Icon
Not yet a member?   Find out more ->
Member Icon Already a member?

Press Release

Press Release

European Leveraged Finance Association supports engagement on ESG provisions in leveraged loans and high yield bonds with new disclosure questionnaires

The European Leveraged Finance Association (ELFA) is today publishing new questionnaires on ESG provisions in both leveraged loans and high yield bonds in response to demand from investors for greater transparency on the key aspects of these terms. The tools form part of ELFA’s New Deal Disclosure Questionnaire Series.

Following engagement with investors in a collaborative effort between ELFA’s ESG Committee and Disclosure & Transparency Committee, the need need for resources to support stronger engagement between borrowers and lenders on ESG provisions in fixed income instruments was clear.

In a recent ELFA survey on ESG provisions in leveraged finance documents, 96% of respondents agreed that a standardised questionnaire would support discussions with borrowers about provisions in green, sustainability and ESG-linked products. In response to this feedback, and following engagement with members and the wider industry, ELFA created the new questionnaires – one for leveraged loans and one for high yield bonds.

Sabrina Fox, Chief Executive Officer, European Leveraged Finance Association, commented: “The nature of a borrower’s ESG provisions has become a key aspect of credit analysis in European leveraged finance deals. Provisions are still largely bespoke, and the market lacks consensus on the format of disclosure. The ESG Provisions in High Yield Bonds Questionnaire and ESG Provisions in Leveraged Loans Questionnaire are part of our New Deal Disclosure Questionnaire Series. The questionnaires are designed to support investor diligence and engagement with borrowers, addressing the risk of greenwashing reflected in such provisions.”

Each questionnaire outlines key topics under three main pillars – Sustainable Performance Targets (SPTs), Reporting, and the structure of ESG provisions in bonds or the structure of the ESG margin ratchet in loans.

  • SPTs: questions include details of what these are, timings for assessment, the base year, strategic initiatives to achieve the SPT, how it compares to regulation set targets, second-party verification and the longer-term goals related to the SPT.
  • Reporting: questions cover whether this is required and the frequency, covenants related to SPT disclosure and reporting and the consequences for no disclosure or reporting.
  • Structure of the ESG provision in the bond: for high yield bonds, questions focus on the coupon step up, timings, and whether this is material, if the bond is callable pre-SPT date and the related cost, and how many SPTs trigger a move.
  • Structure of the ESG margin ratchet in the loan: for leveraged loans, questions focus on when the margin ratchet applies, if the discount accumulates over time, what the coupon step-ups/discounts are and how many SPTs should be achieved or missed to trigger a move. An additional section also inquires about how savings from a margin discount relating to the ESG margin ratchet will be applied.

The New Deal Disclosure Questionnaire Series aims to help align market expectations about the topics that investors expect to cover with borrowers and their advisers during the roadshow. The questionnaires are intended to serve as a starting point for important discussions between borrowers and investors regarding provisions, but are not intended to replace either customised investor ESG due diligence or analysis of the material ESG risks that a company faces, which ELFA’s ESG Fact Sheets are designed to facilitate.

Download PDF

You don’t need to be a member to add to the discussion. Share your experiences, thoughts and ideas with us and help us make a difference.

30 November 2021
Press Release
Survey reveals that majority of flexible working policies in industry allow colleagues to work from home two days per week – European Leveraged Finance Association’s D&I Policy Report 2021: A post-pandemic review

In its inaugural report on diversity and inclusion (D&I), ELFA D&I Policy Report 2021: A post-pandemic review, the European Leveraged Finance Association (ELFA) explores D&I policies post-Covid. Following two surveys conducted by the ELFA’s Diversity & Inclusion Committee the report finds that D&I is a stated priority for senior management in 86% of firms and that the majority of responding firms have a firm-wide diversity and inclusion policy in place, which are measured through KPIs, targets and performance reviews.

10 November 2021
Press Release
The European Leveraged Finance Association launches ESG Exclusion Checklist for CLO market consultation

The European Leveraged Finance Association (ELFA) has today launched its ESG Exclusion Checklist for Business Activities, designed to streamline the negative screening and exclusion process for CLO managers. ELFA will be consulting with market participants on the ESG Exclusion Checklist over the coming weeks.

11 October 2021
Press Release
European Leveraged Finance Association Partners with Rise Well on Mental Health Initiative

The European Leveraged Finance Association (ELFA) has partnered with Rise Well, a Wellbeing & Happiness Consultancy, to create a programme aimed at supporting and educating its members on mental health and wellbeing. The ELFA Wellbeing & Mental Health Initiative, overseen by the Diversity & Inclusion Committee, will provide members with additional support to complement their employer’s existing wellbeing programme. Key elements of the programme have been specifically designed to help members adjust to the new hybrid working format following the pandemic and to cope with any challenges this might create.