Education

Sustainability-Linked Loans: What They Are, How They Work and Why They Matter

Global Head of ESG for Blackstone Credit Rita Mangalick explains how this tool strengthens companies and drives value.

At Blackstone, we innovate solutions to help make the companies we work with stronger and more competitive. The sustainability-linked loans (SLLs) structured by our Credit business – one of the largest lenders of private credit in the world – exemplify that innovation and meet growing investor and borrower interest. SLLs tie the loan’s interest rate to a company’s ability to achieve agreed-upon sustainability goals. This tool both incentivizes the borrower to deliver measurable results and enables Blackstone to leverage its capital and resources to strengthen businesses and support their sustainability initiatives.

Rita Mangalick, Global Head of ESG for Blackstone Credit, explains what this tool is, how it works and why it matters – for Blackstone, for the companies we partner with and for the global energy transition.

What They Are

Sustainability-linked loans are loans where a portion of the interest rate is linked to the borrower’s ability to meet sustainability targets. An SLL incentivizes companies to achieve these targets so they can secure a lower interest rate.

We use a five-step process to structure sustainability-linked loans.

1) Select key performance indicators (KPIs). These KPIs are generally expected to be based on a credible methodology, be quantifiable and material to the borrower’s core business.

2) Develop sustainability performance targets (SPTs) for each KPI. We try to strike a balance between ambition and achievability, supporting a company as they push themselves beyond their “business-as-usual” comfort zone.

3) Determine the interest rate ratchet. This shows how much the borrower’s interest rate will change based on whether or not they achieve their SPTs. We also set a testing timeline for the duration of the loan and determine how frequently we measure their progress.

Blackstone differs from many other private lenders in that we don’t just lower interest rates when a company hits their targets; we may also raise them if they fail. We believe that this two-fold approach energizes companies to meet their sustainability goals, which in turn can strengthen them and increase the value they can generate for our investors.

4) Collect reporting data. We gather this data from the borrower – usually on an annual basis, but more frequently if it supports a borrower’s progress towards their goals.

5) Verify the data. All borrowers are required to use an independent third-party advisor for verification of performance against their SPTs each year. This process reflects our commitment to transparency; we want investors to see that we’re carefully stewarding their capital through sustained, substantive engagement.

How They Work

Our recent investment in Mantis Innovation – whose clients include over 50,000 commercial buildings across North America in industries as diverse as aerospace, industrial real estate, health care, hospitality, financial services, education and retail, among others – illustrates how sustainability-linked loans work on a practical level. Blackstone Credit structured an SLL with Mantis, tying the loan’s interest rate to the company’s performance on three meaningful goals.

Goal 1: Mantis procures energy on behalf of its clients – including renewable energy. They will work to increase the volume of renewable energy they procure over the next three years. This will enable Mantis to capitalize on increasing demand for renewable energy sources.

Goal 2: Mantis also completes client building efficiency projects, ranging from LED lighting and solar panel installation to HVAC and insulation improvements. They will work towards reducing the emissions these projects generate over the next three years.

Goal 3: Mantis seeks to develop a more diverse workforce – and specifically to hire more women, who currently represent just 22% of the traditional energy workforce.1 Mantis is already above the industry average, but it aims to have women represent a third of all its new hires for the next three years.

Why They Matter

We believe sustainability-linked loans give Blackstone a competitive advantage. Borrowers – whether it’s companies seeking to finance growth projects or private equity firms looking to finance an acquisition – know we can provide support at all phases of the sustainability journey, from identifying sustainability goals to expediting progress on pre-existing targets.

They also benefit from the Blackstone flywheel effect, where we can apply the capabilities of one portfolio company to the needs of another as appropriate. A port terminal company we invested in, for instance, knew that they wanted to increase their renewable energy usage. We included this in their SLL and introduced them to two portfolio companies to help them assess options: Altus Power, a solar energy generation company, and Mantis.

Blackstone believes SLLs will play a key role in helping companies transition their energy sources in alignment with the broader global energy transition. SLLs enable investors to make tailored interventions without taking a control position – an attractive feature for investors keen to help their portfolio progress on environmental and decarbonization initiatives without assuming full operational responsibility for the companies they back.   

Credit more broadly also has an important part to play in the global effort to decarbonize. Credit offers large-scale, flexible capital at a low cost – a huge advantage as nations and municipalities seek to transition major infrastructure or transportation networks from fossil fuels to renewables, for example. We’ve built a Sustainable Resources Platform here at Blackstone Credit focused on this worldwide effort and see an opportunity to invest $100 billion in energy transition and climate change solutions across all our businesses over the next ten years. We’re confident that this platform, combined with tools like SLLs, will help us facilitate enduring transformation at our partner companies and create lasting value for our investors.

Legal Disclaimer

This piece is for informational purposes only and is not, and may not, be relied on in any manner as legal, tax, investment, accounting or other advice or as an offer to sell, or a solicitation of an offer to buy, any security or instrument in or to participate in any trading strategy with any Blackstone fund, account or other investment vehicle (each a “Fund”), nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision. If such offer is made, it will only be made by means of an offering memorandum (collectively with additional offering documents, the “Offering Documents”), which would contain material information (including certain risks of investing in such Fund) not contained in the Materials and which would supersede and qualify in its entirety the information set forth in the Materials. Any decision to invest in a Fund should be made after reviewing the Offering Documents of such Fund, conducting such investigations as the investor deems necessary and consulting the investor’s own legal, accounting and tax advisers to make an independent determination of the suitability and consequences of an investment in such Fund. In the event that the descriptions or terms described herein are inconsistent with or contrary to the descriptions in or terms of the Offering Documents, the Offering Documents shall control. None of Blackstone, its funds, nor any of their affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein should be relied upon as a promise or representation as to past or future performance of a Fund or any other entity, transaction, or investment.

Certain of the information contained in this piece has been obtained from portfolio companies and/or sources outside Blackstone, and could prove to be incomplete or inaccurate and is current only as of any specific date(s) noted therein. Blackstone makes no representations as to the accuracy or completeness of the information contained in this linked content and neither Blackstone nor any of its affiliates takes any responsibility for, and has not independently verified, any such information. Unless otherwise stated, references to ESG initiatives, priorities or practices at portfolio companies are not intended to indicate that Blackstone has materially contributed to such actions and such initiatives, priorities, or practices are subject to change, even materially, over time. Further, neither Blackstone’s provision of this linked content, nor any information contained therein, is to be to construed as an offer to sell, or the solicitation of an offer to purchase, any security. This content is provided for informational purposes only and there is no guarantee that Blackstone will invest in similar opportunities in the future.

ESG initiatives may not apply to some or all of a Fund’s investments and none are binding aspects of the management of the assets of a Fund. There can be no assurance that ESG initiatives will continue or be successful. While Blackstone believes ESG factors can enhance long-term value, Blackstone does not pursue an ESG-based investment strategy or limit its investments to those that meet specific ESG criteria except with respect to products or strategies that are explicitly designated as doing so in their Offering Documents or other applicable governing documents. Such considerations do not qualify Blackstone’s objectives to seek to maximize risk adjusted returns.  A decision to invest should take into account the objectives and characteristics of the relevant fund as set out in more detail in the applicable Offering Documents. Further information can be found at www.blackstone.com/european-overview.


[1] “Renewable Energy: A Gender Perspective,” International Renewable Energy Agency, 2019.


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