Sustainability-Linked Loans in Private Credit

13 March 2023

Sustainability has become an increasingly consistent focus area for companies around the world and across industries. Building on this, lenders have been actively seeking ways to move beyond negative screenings for ESG factors in potential investments and toward using their influence to support and effect changes in borrowers’ sustainability practices.

At Ares, we see the benefits of Sustainability-Linked Loans (“SLLs”) across the private credit investment universe, from direct lending to infrastructure and real estate credit. Additionally, having structured SLLs across three continents to-date, we believe SLLs can be suitable for companies globally and that they will become increasingly common.

To support investment professionals across investment strategies to structure SLLs and enable an appropriate governance mechanism, Ares has established a global SLL council that comprises investment professionals across our global private credit platform. In its first initiative, the global SLL council has developed an early framework for SLL structuring, which we anticipate will be continuously refined based on our investment teams’ experiences and market developments.

This whitepaper sets out this framework and seeks to address the most relevant elements for private credit investors looking to better understand and more effectively structure SLLs.