The Institutional Investors Group on Climate Change (IIGCC) has published the first comprehensive net zero guide specifically tailored for the private debt industry.
The "Net Zero Investment Framework for the Private Debt Industry" sets out differentiated but complementary net zero targets for both general partners (GPs) and limited partners (LPs), while outlining a standardised approach for engagement and reporting that can be adopted by LPs, GPs, and portfolio companies.
This new guidance brings private credit into the fold of the widely used Net Zero Investment Framework, which now covers seven asset classes. It aims to establish a cohesive framework for action across the private debt industry, supporting investors in strategies such as direct lending, venture/growth debt, opportunistic credit, structured credit, fund financing, and private placements.
Developed by IIGCC with support from Ceres, the guidance aims to reflect private market-specific nuances and recognises the unique characteristics of private debt investments. This includes a 12-month grace period post-deal close, a three-way engagement model involving private equity sponsors, climate-related ESG margin ratchets, and climate disclosure requests in loan documentation.
Misa Andriamihaja, Private Equity lead at IIGCC commented on the new initiative: "By outlining a consistent industry-wide approach, the new guidance can help raise ambition levels for both GPs and LPs active in private credit, as well as underlying portfolio companies. Based on input from a wide variety of industry stakeholders, the guidance’s most valuable attribute is its recognition of the specific characteristics of private debt investments. Together with last year’s private equity guidance, we look forward to seeing investors create and implement their net zero plans for private market investments in support of their financial goals.”
The initiative was welcomed by private credit managers. Niamh Whooley, managing director and head of Sustainable Investing at Pemberton Asset Management said that the inclusion of key performance indicator for alignment to net zero milestones had notably advanced discussions with firms.
The launch of IIGCC's private credit guidance comes as the Net Zero Asset Owner Alliance has committed last month to set climate targets and report on private market asset holdings within the next five years.
Over the last 20 years, institutional investors across the globe have drastically scaled up their allocations to private markets. While these allocations vary greatly by region and funds, private market allocations accounted for some 24% of the average institutional investment portfolio, according to BlackRock's latest Global Private Markets survey. More than half of survey respondents are planning to increase their private credit allocations.
NZAOA members commit to setting climate targets for private market assets
