A PRI survey of private debt market participants has found significant advances in ESG incorporation, engagement, and other practices. This paper provides insights into the state of play for responsible investors in this market. 

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Executive summary

Much has happened in the responsible investment landscape since the PRI’s first report on private debt in 2019. Assets under management in ESG funds have grown rapidly; key markets have stepped up regulation; there have been two crucial Conferences of the Parties on climate and biodiversity; and the tone of political debate around ESG has sharpened in some markets. These changes have raised the bar in every asset class for investment managers and asset owners committed to responsible investment.

When we developed a responsible investment framework for private debt investors in 2019, investors told us they struggled to incorporate ESG factors into investment decision-making or engagement with borrowers in private debt. In early 2023, we undertook research to map current market practices and test how the market has changed.

The research shows that private debt limited partners (LPs) and general partners (GPs) have made great strides in integrating ESG-related risks into decision-making. The majority of the industry now incorporates ESG factors in some way and many industry participants are collaborating to improve data collection and reporting. This paper shares the findings from our research and proceeds as follows:

Market overview

This section gauges the growth in private debt transactions and reviews four factors driving the integration of ESG factors into investment decision-making. It highlights that investor demand and regulatory issues are the key considerations for LPs and GPs in the private debt market.

Incorporating ESG factors into decision-making


Collection of ESG data has become widespread, chiefly to inform due diligence. The survey highlights issues relating to data quality, reliability and verification in the private debt market. This section looks in detail at how data is collected in the private debt market and outlines some ideas for improving access to data.

Engagement and sustainability-linked loans

Engagement is viewed as challenging for private debt investors because their ownership rights differ from those in other asset classes. In this market, efforts to encourage improved sustainability outcomes have taken the form of sustainability-linked loans (SLLs), which link sustainability targets or performance indicators with the interest rates paid by borrowers.

Private lender and private equity sponsor collaboration

The survey shows that collaboration among private lenders – and with private equity sponsors – is the exception rather than the norm. Yet LPs are strongly in favour of collaboration to promote standardisation in data collection to improve sustainability outcomes at borrowers.

Climate-related risks and targets

The survey found improved reporting against the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, however it also highlighted barriers to target-setting and scenario analysis. Broadly, the survey indicates that LPs’ expectations on aligning with net-zero ambitions are rising and GPs must develop processes to incorporate similar principles in the private debt asset class.

Excerpts from interviews with signatories are included throughout the report.

Taking action

The earlier report provided a framework for incorporating ESG factors in each phase of the investment process: origination / pre-assessment, due diligence / investment approval, and holding period. The feedback from the survey and interviews have allowed us to provide updates to leading practices in data collection, engagement and SLLs and collaboration during each phase of the investment process.

Figure 1: Opportunities to improve ESG incorporation throughout the investment cycle

 DataEngagement and SLLsCollaboration

Origination / pre- assessment

Loan or deal documentation

Develop standardised ESG clauses for loan documentation.

Identify and agree ESG ratchets pre-transaction.

Develop methodologies for standard KPIs and incentives.


Develop group response to climate change

Identify key drivers and objectives.

Review peer group practices and external guidelines.

Develop a portfolio response to climate change

Develop sector-specific approaches for different borrowers.

Private equity sponsors

Develop collaborative relationships between private lenders and private equity sponsors, especially on climate-related risks and engagements.


Due diligence / investment approval

Pooling resources

Use relationships with market participants to leverage resources and expertise during due diligence.

Climate data reporting

Introduce climate metrics for borrowers and incorporate into LP reporting.

Sustainability-linked loans

Aim to improve guidance, training, verification around the use of SLLs.

Clearly define, document and verify interest rate ratchets tied to multi-year ESG KPIs.


Improve consistency

Develop and establish consistent practices for investment due diligence.

Private lender relationships

Determine common ESG data collection or SLL targets to collaborate on to ensure consistency.

Holding period

Standardised ESG reporting

Actively support standardisation of data collection and monitoring of borrowers.


Standardising SLLs and / or KPIs

Define and document interest rate ratchets tied to ESG KPIs over multi-year period.

Undertake annual verification of KPIs and restatement if material acquisitions occur.

Extend KPIs beyond data disclosure to include cost savings connected to ESG initiatives and outcomes.

Develop external, independent and verifiable sources of information to monitor if targets have been met.

Private equity sponsors

Increase collaboration with private equity sponsors on ESG data and SLL oversight progress.

Industry engagement

Develop and commit to collaborative initiatives with borrowers and private equity sponsors around ESG integration frameworks and climate and data collection initiatives.


About this paper

This paper builds on the PRI’s 2019 report, Spotlight on Responsible Investment in Private Debt, and develops an analysis based on interviews with 20 private debt market practitioners and a survey of 85 market participants. The survey and interviews were done between February and May 2023. The PRI selected CRISIL to help design, execute and deliver the survey and interviews. CRISIL delivers bespoke ESG integration services and solutions to a broad range of capital market participants. The PRI had extensive help in the design and anlysis of this report form the PRI’s Private Debt Advisory Committee (PDAC). The online survey included private debt investors, especially those involved in direct lending, who act as general partners (GPs) and / or limited partners (LPs).

The survey’s multiple choice questions covered five areas:

  • Collection of environmental, social and governance (ESG) data
  • Consideration of climate-related risks in decision-making
  • Collaboration with peers and private equity sponsors
  • Sustainability-linked loans (SLLs)
  • Limited partners’ engagement with general partners and borrowers.

Of the 85 respondents, 78% were GPs and 22% were LPs. The LPs and GPs were from Europe and North America. The majority of AUM from these respondents was invested in North America and Europe and the most frequent AUM size was less than US$50bn for both LPs and GPs. The 20 interviewees are listed in the acknowledgements and were largely selected from the PDAC.

This report is intended to complement the PRI’s existing work on private debt and responsible investment, as shown below.

ESG Integrated Disclosure Project: An industry initiative to improve transparency and accountability by bringing together leading lenders in the private credit and syndicated loan markets.

Private Credit-Private Equity ESG Factor Map: The map streamlines the ESG information shared during the investment process to facilitate collaboration between sponsors, co-investors and lenders and integrate existing ESG standards and frameworks.

Spotlight on Responsible Investment in Private Debt: This 2019 guide provides a framework for incorporating ESG factors into the investment process for private debt. It covers data, investment decisions and engagement.

ESG in Private Debt podcast: Adam Heltzer (Ares Management) and Faith Rosenfeld (HPS Investment Partners) talk to the PRI about how private debt investors are incorporating ESG into their investment practices.

Responsible investment DDQ for private debt investors: Indirect investors (i.e., LPs or asset owners) can use this ESG due diligence questionnaire (DDQ) when assessing potential private debt managers.