CLOs can preserve investment flexibility despite growth of ESG limits

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By Paola Aurisicchio
07 Apr 2021

CLOs have 'by nature' a limited exposure to the industries commonly excluded under ESG criteria, meaning their investment flexibility will be preserved, despite the exclusions appearing in more and more deal documents. This bodes well for the growth of ESG screening in the US CLO market, which has lagged behind other markets, with only 10 deals so far featuring the language, according to Deutsche Bank.

ESG exclusions are slowly gaining traction in US CLOs, driven by increased investor focus and potential regulatory changes. This year, according to Bank of America and Deutsche Bank, might be a turning point for ESG in securitization, but sustainable investing approaches have seen limited application in the market ...

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