ELFA prepares standardised ESG CLO questionnaire

Michelle D’souza

Senior reporter

The European Leveraged Finance Association is in the final stages of launching a standardised ESG questionnaire for the CLO market. Sources anticipate it will be published and distributed before the end of the year.

It is anticipated that once CLO managers have completed the questionnaires they will be delivered to syndicates, with the intention of sending them out to investors alongside the managers’ investor presentation, when CLOs are marketed. This would then lead to a reduction in the time spent on due diligence by managers and investors.

Elfa’s CLO investor committee, which was established last year, is “an open-minded forum where CLO investors can debate the issues we all face while remaining true to our own competitive goals, to find common solutions for the greater good of the CLO market”, according to its co-chair Emeric Chenebaux, structured credit portfolio manager at Federated Hermes.

He says ESG is top of the agenda because the lack of standardisation across CLOs makes comparisons difficult.

“The questionnaire will streamline due diligence”

Denis Struc, Portfolio manager | Janus Henderson

Janus Henderson’s Denis Struc, who is co-chair of the CLO investor committee, says members of the CLO working group were quick to see the overlap between “shared questions we ask as CLO investors”.

“Creating a single questionnaire will take the efficiency and transparency of the market to the next level, and gradually phase out the multitude of individual questionnaires to streamline due diligence. The questionnaire was designed to provide direction on disclosure without setting rigid parameters of what is ‘good’ or ‘bad’ in matters of sustainability.”

Over the past nine months, the CLO working group has identified key questions that CLO investors have about CLO managers’ ESG approach and compiled a two-part questionnaire.

The first part covers the manager itself, with regard to environmental considerations, executive board and team composition, talent development, gender diversity, social mobility and working flexibility, among others. The second part covers the ESG investment framework, details on process and governance, its adoption and use by the investment team, the engagement approach, resources and data, and public disclosure.

Elfa’s CLO investor committee brings together 15 of the largest CLO investors in Europe.

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October 2022 | Issue 249

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