ESG stands for Environmental, Social, and Governance. Investors are increasingly applying ESG factors as part of their credit analysis and investment process to identify risks and opportunities associated with these factors. Common considerations associated with ESG factors would include:
– Environmental – greenhouse gas emissions, energy management, water management
– Social – workplace safety, data security
– Governance – compliance, risk management, audit
The importance of these factors to investment analysis will vary across different businesses. While some ESG factors are seen to be commonly applicable to all business sectors, others are only relevant because of the industry(ies) in which a company does business.
The ESG IDP was established by the Alternative Credit Council, the private credit affiliate of the Alternative Investment Management Association, the Loan Syndications and Trading Association and the United Nations-supported Principles for Responsible Investment in cooperation with a group of leading alternative asset managers and credit investors.
The ESG IDP’s mission is to support businesses to make ESG focused disclosures when seeking financing. Businesses seeking finance are increasingly faced with multiple requests for ESG related data aligned with different frameworks and initiatives. The ESG IDP has brought together leading investors in the private credit and broadly syndicated market to address this and create a harmonised and proportionate disclosure template that can be adopted across the market. A chief objective of this work has been to ensure that the data requested can realistically be provided by businesses of various sizes, including small to medium enterprises (SMEs).
Credit fund managers will each have their own approach to the use of ESG data and what they request from the companies they to lend to but some common reasons for seeking ESG data include:
– To assess their investments against their investment mandate. This can involve both positive screening (i.e., seeking to invest in certain sectors) or negative screening (i.e., seeking to avoid investment in certain sectors)
– To support their investment analysis where ESG factors are seen to be relevant to the investment case or investment outcome sought
– To meet specific reporting obligations requested by their investors
– To meet regulatory requirements which they are subject to
The ESG IDP Template has several features which enhance its functionality and make it easier to complete. One of which is a setting which means that additional industry specific questions are added to the template when you select the industry(ies) which most closely applies to your business.
However, the security settings on some computer systems may block these macros from functioning when you have downloaded the file from the ESG IDP website.
One means to address this is to save the template to your local system. When you re-open the template from there, it should then have the full functionality enabled. If this does not work, users should then try the following method:
1. Save the file to a local hard drive.
2. Open Windows File Explorer and go to the folder where you saved the file.
3. Right-click the file and choose Properties from the context menu.
4. At the bottom of the General tab, you should see a section for Security. Select the Unblock checkbox and select OK.
For further technical inquiries please email firstname.lastname@example.org.
The ESG IDP Template is both a standardised reporting tool and a guide to borrowers on lenders’ ESG expectations and how they will evolve. For that reason, there are core questions which should be read as information that investors expect borrowers to share now and there are optional questions which should be read as requests for information which will likely become part of investor expectations in the future.
In addition, to the “General” questions applicable to any borrower, there is also an optional set of questions which are applicable to the borrower based on the industry(ies) in which it operates.
The ESG IDP Template is divided into the following sections:
– Introduction tab: This tab includes instructions and explanatory notes to assist in completing the ESG IDP Template. Borrowers are strongly encouraged to read this tab before completing the ESG IDP Template.
– General tab: The ESG IDP Template includes a set of general, industry-agnostic questions which offer a baseline ESG assessment of the borrower’s business. Most of these questions are “core” questions, i.e., information that investors expect borrowers to be able to share now/in the immediate future. Core questions should be a company’s primary area of focus. “Optional” questions represent aspirational questions. Companies should respond if able, but comprehensive responses are not expected by lenders at this time. It is expected that these aspirational questions will become “core” questions in the future and are offered to guide companies as they develop reporting capacity.
– Industry-specific tab(s): The ESG IDP Template includes additional industry-specific questions which are generated based on the industries in which a borrower respondent self-reports that they operate. For each selected industry (based on the IFRS Foundation Sustainable Industry Classification System® (SICS®)) a set of questions is generated. These questions include those relating to between three and five disclosure topics which have been prioritised for borrower attention. The disclosure topics have been identified as financially material in the internationally recognised SASB Standards pertaining to that industry. In each instance, borrowers are also given the opportunity to respond to the complete set of SASB Standards. Lenders do not expect all companies in all industries to be able to complete these questions, however, companies are expected to develop the ability to complete these questions with time. Like “optional” General Questions, the set of prioritised questions is included to guide companies as they build their reporting capacity. Some companies e.g., in highly regulated industries, may already be able to respond to these questions and are strongly encouraged to do so.
For a how-to video on the Template, please check out the ESG IDP Tutorial video under the “Resources” heading on this website.
No. There are core general questions, optional general questions and prioritised industry-specific questions. Borrowers are encouraged to complete as much of the Template as they can with a view to expanding their reporting capacity with time. One of the unique aspects of the Template is the sequencing of questions based on investors’ current and future expectations. Borrowers are encouraged to use this Template as a guide as they plan and develop their reporting capacity.
Anytime. In fact one of the advantages of choosing to complete this Template is that it need not be done when coming to the credit markets. Accelerated deal timelines are not ideal for responding to unfamiliar data requests. The Template, which is supported by the lender community, is available at any time and companies can complete the Template at their own pace which may lead to more and fuller responses.
The ESG IDP is not a data collection exercise. The Template is shared only with parties to the loan as described below or as otherwise shared by the borrower.
In a private credit transaction, the private equity sponsor or the borrower will share the completed Template with prospective lenders via Dropbox or other secured means for sharing diligence materials. In a syndicated loan transaction, the private equity sponsor, arranger or a prospective lender may request a completed Template from the borrower. Best practice is for the completed Template to be shared with all prospective lenders by posting to the deal site and the agent site so that primary and secondary trading market participants can use this information to support their investment analysis.
In a sponsored acquisition financing, the Template may be sent by the private equity sponsor to the target company for completion. In a non-sponsored financing, the arranger or direct lender will send the Template to the prospective borrower to complete.
Market participants have identified a number of use cases for the Template, a primary one being as a diligence tool at the origination of a loan, borrower engagement, portfolio monitoring and investor reporting processes.
The SASB Standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each of the 77 SICS® industries. In August 2022, the IFRS Foundation assumed responsibility for the SASB Standards. The ESG IDP Template’s Industry-specific tab(s) questions are sourced entirely from the SASB Standards. The SASB Standards will serve as the technical basis for the industry-based disclosure standards being developed by the International Sustainability Standards Board (ISSB). As such, companies who build capabilities to report consistent with the SASB Standards will be well positioned to complete disclosure consistent with the ISSB Standards which are increasingly codified in regulation and securities exchange guidance globally.
The set of questions that have been prioritised for borrower attention have been selected based on the ESG IDP Industry-specific Methodology. The Methodology was developed to identify and prioritise certain disclosure topics for a borrower’s near-term attention. It is expected that borrowers will be asked to respond to the entire relevant set of SASB Standards with time, however, application of the methodology offers guidance to borrowers on where to start in the development of their reporting capacity.
For further information on the ESG IDP Industry-Specific Methodology, please check out Vice Chair Jeff Cohen’s video and blog post under the “Resources” heading of this website.
The complete SASB Standards for all 77 SICS® industries can be downloaded online in English, Spanish, French, German, and Japanese.
A list of questions investors and companies can use to discuss each industry’s financially material sustainability risks and opportunity can be found in the SASB Engagement Guide for Asset Owners and Asset Managers.
The ESG IDP Template offers advantages to all market stakeholders:
– For investors: the ESG IDP template will improve the consistency of disclosure to investors, enhancing their ability to identify industry-specific ESG risks in their credit portfolios and compare data across alternative asset managers more consistently.
– For borrowers: the ESG IDP template will provide borrowers with greater certainty on the ESG indicators that are most relevant to lenders. This will allow borrowers to concentrate on these disclosures rather than respond to a multitude of similar questionnaires.
– For credit fund managers: the ESG IDP template will support the ability of credit fund managers to engage with borrowers on disclosure as well as develop efficient investor reporting processes.
For more information on the value of harmonisation, please check our Chair Michael Kashani’s video under the “Resources” heading of this website.
The ESG IDP will work through its Secretariat and Executive Committee to monitor usage and contents of the Template. Maintenance of the ESG IDP Template will be an iterative process. At a minimum, there will be an annual review and update (as appropriate) to the Template. The ESG IDP Template was last updated in July 2023.
We encourage contacting the Secretariat at email@example.com with any suggestions of how to improve the Template.
The ESG IDP will also offer additional educational materials to support usage of the Template. Those materials will be available on the ESG IDP website as well as at events hosted by ESG IDP supporters.
In addition, the ESG IDP is working on offering additional technology enhanced versions of the Template. An excel version will always be available, but we are considering offering a UI format as well, to bring even more efficiency to the borrower’s experience.
Your first point of contact should be the arranger, credit manager or investor which has shared this template with you as they will be best placed to assist and support you in completing the required questions. Please note that explanatory notes have been provided for many questions in the Template and the “Introduction” tab provides specific instructions to assist users when completing the Template.
If you are interested in receiving information and updates, please send an email to firstname.lastname@example.org and you will receive distributed materials. By sending this email you agree to be contacted by the ESG IDP. To opt out of future email communications, please send an email back to email@example.com.
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