Revolving subscription credit facility arranged by Citi and Standard Chartered pioneers a new course for impact-linked loans in private markets, by both incentivising and measuring environmental and social outcomes of investments.
Actis, a leading global investor in sustainable infrastructure, has secured an impact-linked revolving subscription credit facility for its latest energy fund. The fund, Actis Energy 5, recently closed with $6 billion of investable capital and will target energy transition investments worldwide.
The new facility represents the next generation of sustainability-linked credit financing in private markets. It features a hybrid format and is the first to combine both eligibility criteria for projects that can be funded by the facility (“use-of-proceeds format”) with a margin adjustment mechanism that incentivises impact outcomes. These outcomes will be assessed using the Actis Impact Score™ (AIS) methodology (“sustainability-linked format”).
This hybrid format facility seeks to overcome the limitations of existing impact-linked structures, by incentivising that loan proceeds are directed to projects that will deliver social and environmental improvement, and that these can be objectively and continually measured for the magnitude of their impact using the AIS.
Any drawing under the new facility will qualify for a “use of proceeds” margin benefit from the point in time that the drawdown is made, but only providing it can be demonstrated that it will be used within one or more of three measurement criteria:
- Invest in an energy sector that contributes to climate change mitigation;
- Invest in a country where energy access is limiting economic growth;
- Creates “new positive impact” as determined by the Actis Impact Score™.
By focusing on measurable impact outcomes, Actis and the facility’s two sustainability coordinators, Citi and Standard Chartered, hope to catalyse widespread adoption of this new hybrid format in other financing structures, which will help deliver positive social and environmental outcomes across private markets.
The facility details include:
- Revolving Subscription Credit Facility of up to $1.2bn to be used to finance investments in accordance with the Fund’s investment strategy.
- The investment strategy is set up to solely invest in sustainable infrastructure projects that contribute to UN Sustainable Development Goal 7 (Affordable and Clean Energy).
- Financing provided by a strong syndicate of leading banks in fund financing.
- The Facility incorporates annual reporting requirements on the use of proceeds and independent verification against the three measurement criteria (as above).
- Citi and Standard Chartered acted as lead Arrangers and joint Sustainability Coordinators and were joined by four banks to complete the syndicate.
The Actis Impact Score, first developed in 2019, is based on the industry consensus for impact measurement and management established by the Impact Management Project and aligns investment impact with the UN sustainable development goals. Actis uses the AIS throughout the lifecycle of an investment to ensure that the impact intent is clear across the firm and reduces the risk of misalignment in objectives.
Shami Nissan, Head of Sustainability at Actis, said: “This new credit facility represents the latest in the evolution of sustainability-linked financing, charting a new course when it comes to financing private market investments in the energy sector. It will mean our latest energy fund is fully incentivised to invest in a just and equitable energy transition, that these investments deliver meaningful positive impact for the environment and society, and further support our mission of transforming infrastructure for a better tomorrow. The deal is a collaboration between the Actis Sustainability and Banking teams, and we are delighted to have attracted such a strong syndicate of banks to support us.”
Val Smith, Chief Sustainability Officer at Citi, commented: “This facility represents the cutting-edge of sustainability-linked credit facilities, and incorporates stringent measurement criteria from the award-winning open-source Actis Impact Score. It’s a pleasure to be part of such an innovative initiative at a critical time for climate action, which also aligns with Citi’s Sustainable Progress Strategy and commitments to a low-carbon future. We hope this pioneering facility encourages others to follow suit in private markets.”
Jonathan Donne, Global Head of Strategic Investors Group at Standard Chartered Bank, commented: “We are delighted to have partnered with Actis on this subscription finance facility which incorporates clearly defined ESG performance targets reflecting Actis’ commitment to investing in the energy transition. Climate change continues to present a significant challenge globally and we will continue to innovate our sustainable finance offering to support the evolution towards a sustainable future.”