Investment consultancy Redington has partnered with the Principles for Responsible Investment (Pri), a UN-supported network of investors, to publish guidance on embedding stewardship practices in private debt.
The report has highlighted the opportunities and challenges for investors engaging with borrowers, lenders and sponsors in the asset class.
There are five core areas for effective stewardship in private debt, according to the report. First, it defines stewardship in the asset class as multifaceted, combining unique challenges with the potential to influence outcomes. It then explores the “spectrums of influence” investors can have, noting that factors such as market context, transaction structure, timing and the nature of the borrower all shape the ability to drive change.
The guidance also highlighted challenges faced by private debt investors, including constraints around timing, access, responsiveness and data quality. To address these, it recommended four main tools: providing resources and training, maintaining ongoing engagement with sponsors and borrowers, incorporating sustainability-linked margin ratchets and covenants and participating in advocacy or collaborative initiatives. Finally, it stressed the value of integrating stewardship into every stage of the investment lifecycle to enhance both sustainability outcomes and portfolio value.
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David Atkin, CEO of the Pri, commented: “The private debt market has expanded significantly in the past 15 years. But for this highly complex asset class, lenders face significant barriers to stewardship that do not necessarily exist elsewhere.
“Our previous research has highlighted the need for industry guidance on how private debt investors can effectively practice stewardship to promote long-term value and sustainable practices among the companies they finance. This paper is designed to offer practical tools and strategies for investors to engage borrowers and private equity sponsors, stressing stewardship’s role in reducing risk and supporting value creation, thereby improving the borrowers’ creditworthiness.”
Edwin Whitehead, director, sustainable investment at Redington commented: “We were proud to be appointed by the PRI to lead the research for this important piece of work. It builds upon our strong track record in sustainable investment and our broad research capabilities across a full range of asset classes.
“It was a pleasure collaborating with the PRI and wide range of global practitioners through workshops and interviews. Their insights were instrumental in shaping practical, actionable guidance on the role of stewardship in private debt. The final output clearly reflects the breadth and depth of this collective expertise. Encouragingly, we’re already seeing leading practitioners driving meaningful change through their activities.”
