June 10, 2021 - by Tess Virmani. The LSTA has now launched its second ESG Diligence Questionnaire: ESG Diligence Questionnaire – Manager. This Questionnaire was developed together with the LMA and ELFA and the trade associations’ respective working groups and is designed to be completed by asset managers and shared with investors. Building on the publication of the “ESG Diligence Questionnaire – Borrower” first launched in February 2020, this document looks to streamline the varied and often duplicative ESG information requests to which managers are routinely responding. The hope is that by having a Questionnaire that is developed based on the most common of those information requests this document can offer an “industry standard” which can be broadly accepted. In this way, the Questionnaire recognizes the importance of ESG information to investors while bringing efficiency to the disclosure process. The LSTA is pleased that we were able to complete this project together with our global counterparts, the LMA and ELFA, to offer a coordinated solution to all of our members.
In connection with the development of this new Questionnaire, the LSTA, through its ESG Committee, has taken the opportunity to update the “ESG Diligence Questionnaire – Borrower”. The refinements to the questionnaire, in part, are designed to better align with the Manager-version, where appropriate, particularly with respect to ESG frameworks / standards used by borrowers as well as the enumerated business activities from which borrowers are asked about their company revenues. In addition, a new question on the measurement of greenhouse gas emissions has been included in light of the frequent and growing requests by investors for this information. Finally, the best practice for sharing the completed Questionnaire has been updated to make clear that this questionnaire is appropriate for inclusion with other diligence materials on any transaction as well as clarifying that the completed questionnaire should be posted to the relevant data room for prospective lenders as well as the relevant Agent site for prospective lenders in the secondary market. It is critical that such an ESG diligence hygiene become routine in the loan market in order to meet lenders’ need for quality ESG information. This Questionnaire seeks to establish a baseline of such information and a means for borrowers to tell their ESG story in a standard fashion.
Many borrowers are in the early stages of reviewing their business for ESG considerations. In recognition of this fact, the industry-agnostic Borrower questionnaire points borrowers to SASB’s Materiality Map – an interactive tool for the SASB Standards – as a useful point of reference for relevant ESG business issues. Recently, SASB presented to LSTA membership to educate on the SASB Standards and their myriad uses. Unlike some of the other standards in the ESG ecosystem, such as the GRI Standards, the SASB Standards focus on financially material ESG information and seeks to make ESG disclosure be decision useful, investment relevant and cost effective. Therefore, the SASB Standards are clearly developed with the investment community in mind. The Standards are industry-specific and the disclosure topics for each of the 77 industries are selected based on: whether the issue is of investor interest and may materially impact a company’s performance, whether the issue is prevalent across companies in the relevant industry, and whether the issue is within the control of a company in the relevant industry. The webcast replay is available here.
In the fast-evolving area of ESG, the LSTA – together with its ESG Committee – will monitor developments and seek to update these Questionnaires periodically as needed. Please feel free to contact Tess Virmani with any feedback.