The evolution of ESG in lower middle-market direct lending – Capital Dynamics

ESG in direct lending has become a tool for both enhanced returns and making a real-world impact.

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Bryn Gostin, Chair of Capital Dynamics' Responsible Investment Committee, and Jens Ernberg, Co-Head of Private Credit share their perspectives and insights on several aspects of responsible lending in lower middle-market credit, including:

The benefits of ESG criteria on the performance of small companies.
Techniques to underwrite ESG as a direct lender.
And, the strategic use of influence on the sponsor and borrower absent the ability to control corporate action.

Experienced direct lenders have been underwriting environmental, social, and governance risks since before ESG became mainstream. It is Capital Dynamics expectation that evolving ESG screening from an exclusive focus on risk mitigation to screening for favorable and improving ESG attributes will not only result in credit portfolio outperformance, but also direct capital to companies that are contributing to an improving society.

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