October 17, 2024 - On October 7, 2024, the LSTA launched an updated version of the LSTA and LMA’s ESG Due Diligence Questionnaire – Manager (“Questionnaire”), a diligence tool intended for investment managers to share with their investors. The Questionnaire, which solicits financially material information on the environmental, social and governance (“ESG”) criteria regarding a manager’s relevant investment strategies, is a joint initiative of the LSTA and Loan Market Association (“LMA”). The amended version enhances alignment with global standards and was vetted by the ESG/Sustainability Committees of both associations.
The initial version of the document was published on June 4, 2021 as a disclosure tool for managers to complete with respect to their relevant strategies at the pre-investment stage or as otherwise requested by an investor. It was originally aligned with the LSTA’s borrower-focused ESG Diligence Questionnaire (which has since been retired in support of the ESG IDP template). The intention was to offer a reporting tool that could streamline the varied and often duplicative ESG information requests routinely received by managers. Because the question set captures the most customary inquiries received by a broad swath of asset managers active in the current market, the document acts as an “industry standard” and thus promotes industry convergence regarding ESG frameworks and standards.
The LSTA, in conjunction with the LMA, has produced the updated version of the Questionnaire to further ESG harmonization efforts (included is a blackline to the initial iteration of the document). The modified Questionnaire adopts the questions set forth in the UN PRI DDQ for Private Debt Investors. The questions set forth therein have been similarly adopted by the Alternative Credit Council, which worked with PRI to update them in July 2023. We know that this harmonization effort is greatly welcomed by our investment manager members and believe that it will also be supported by the credit investor community. Alignment of industry efforts that allow for streamlined reporting is a critical step in advancing the quality and comparability of ESG information. It also highlights the importance of ESG information to investors while bringing efficiency and cost-effectiveness to the disclosure process.
While the questions in the Questionnaire track those in the PRI DDQ, the Questionnaire does offer tailored guidance for managers with respect to their broadly syndicated lending (“BSL”) activity. As an example, BSL lenders face specific challenges when it comes to ESG issues because the larger lender group leads to less direct communication with the borrower. That dynamic is explicitly highlighted for relevant questions.
The LSTA, through its ESG Committee and together with its global counterparts, will continue to monitor developments in the space and seek to implement refinements to the Questionnaire as needed and with a view to promoting industry harmonization around ESG reporting.
Please feel free to contact Tess Virmani or Elizabeth Yazgi with any questions.
