A recent deal involving London-based private equity firm Actis could mark a significant shift in how money is loaned to environmental impact funds, creating a more accessible pathway to financing sustainable projects.
In the deal, announced on Feb. 22, Actis secured an impact-linked revolving subscription credit facility for its new energy fund. The fund is called Energy 5 and will target energy transition investments worldwide. It closed with $6 billion in investable capital, exceeding the firm’s earlier target to raise $4.7 billion.
Citi and Standard Chartered arranged the credit facility. It marks a new course for impact-linked loans in private markets by adopting a hybrid format that incentivizes and measures investments’ environmental and social outcomes, Actis said in a press release.
“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,” Shami Nissan, Actis’ head of sustainability, said in a statement.
The goal of the hybrid format is to overcome the limitations of existing impact-linked financing structures by working to ensure that loan proceeds are directed toward projects that will have a positive social and environmental impact. Another critical element is that the projects are objectively and continually measured for the magnitude of their impact using the Actis Impact Score (AIS) methodology.
The AIS was first developed in 2019. It is based on the industry consensus for impact measurement and management established by the Impact Management Project. The idea is to align the 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 and to reduce the risk of not meeting its objectives.
In terms of how the credit facility money will be used, Actis identified three primary criteria:
- Invest in an energy sector that contributes to climate change mitigation.
- Invest in a country where energy access is limiting economic growth.
- Create a “new positive impact” as determined by the Actis Impact Score.
Up to $1.2 billion will be used to finance investments in accordance with the fund’s investment strategy. The strategy itself is to invest only in sustainable infrastructure projects that contribute to UN Sustainable Development Goal 7 (Affordable and Clean Energy).
“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,” Val Smith, Chief Sustainability Officer at Citi, said. “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.”
Citi and Standard Chartered acted as lead arrangers and joint sustainability coordinators and were joined by four banks to complete the syndicate.
Jonathan Donne, the Global Head of Strategic Investors Group at Standard Chartered Bank, said the facility “incorporates clearly defined ESG performance targets” that reflect 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,” Donne said.