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Singapore-based PE gets world's first fund financing based on sustainability performance: ING

ING on Friday said it has introduced the world’s first sustainability improvement fund financing for a Singapore-based private equity fund, Quadria Capital, reflecting the rising interest from the financing sector in factoring in environmental, social and governance (ESG) in capital-raising activities.

With the US$65 million three-year revolving facility, Quadria Capital would have its borrowings' interest rate peg to its sustainability performance, ING said in a press statement.

Quadria Capital is a private equity sponsor focusing on the healthcare sector in developing Asia. It has raised a substantial portion of its US$500 million Quadria Capital Fund II and expects to close the fund by this year end, ING said.

Quadria’s facility will peg the interest rate to a set of ESG performance targets on its Fund II investee companies and investment portfolio. With this, the interest rate will be linked to the fund’s sustainability improvement through its investment activities.

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The set of ESG metrics is based on key performance indicators provided by B Analytics and further mapped to Quadria’s own internal ESG frameworks - which follows the United Nations’ Principles for Responsible Investment (PRI) - as well as an independent materiality assessment.

Performance of the fund against these metrics will be assessed annually by B Analytics and if pre-determined targets are met, the interest rate will be reduced in the following year. ING did not disclose the rate of reduction.

In the press statement, Herry Cho, ING’s head of sustainable finance in Asia, said that ESG criteria is rapidly becoming a key consideration for mainstream global institutional investors and asset owners allocating money into private capital. She said that of the UN PRI signatories’ US$90 trillion asset under management globally, private capital currently accounts for only 6 per cent.

"The potential for private capital to become more ESG-focused is quite significant,” said Ms Cho.“As a bank we aim to promote socially responsible behaviour in the funds and fund managers we finance, so that we may influence ESG improvement in portfolio companies by incentivising their shareholders."

ING’s head of clients and sectors for Asia-Pacific Eddy Henning further said that private-equity sponsors will increasingly link their performance to sustainability metrics because the returns of the asset class has been generally out-performing others as allocations from the international investor base also increase.

"These investors have caught on to the fact that contrary to popular belief, an ESG strategy can enhance returns as well as unlock new access to capital," he added. “We see sustainability improvement products highly replicable not only in private equity and healthcare, but also in real assets, infrastructure, or financial inclusion amongst others.”

In the statement, Abrar Mir, managing partner at Quadria Capital, said it was a "meeting of minds" between the private equity fund and ING when the bank first proposed this. “Quadria Capital is a firm focused on a dual mandate of positive investment returns with constructive social impact by increasing and improving accessibility and affordability to healthcare in South and South-east Asia."

In 2017, ING was the first financial institution globally to launch the concept of a sustainable loan when it collaborated with Royal Philips on a one billion euro (S$1.51 billion) syndicated loan that had the interest rate coupled to sustainability performance and rating. 

ING also has closed four sustainability improvement loan facilities in Asia so far, including with Wilmar International. It has closed 66 such deals globally.