Words can be cheap in the market for loans, now some lenders want to change that.
In recent years, borrowers have been able to get a reduction in their interest costs in return for meeting targets linked to environmental, social and governance (ESG) goals. That trend has been turbocharged this year by private equity firms seeking a piece of the action.
ESG-linked loan issuance hit $87 billion during the first quarter, triple the amount over the same period last year, according to data provider Refinitiv.
As billions pour into the market, some lenders are wary about relying on the word of borrowers that they are meeting targets on everything from reducing food waste to promoting more women.
“The burden of proof is going to rise. Be prepared for it,” said Mark Wade, head of sustainability research and stewardship at Allianz Global Investors.
Three industry associations that represent underwriters, law firms and asset managers in Europe,…