Coller Capital’s 2024 ESG Report

ESG in Private Credit Secondaries case study

Coller Capital raised the world’s first dedicated private credit secondary fund, Coller Credit Opportunities I (CCO I), in 2021.

Credit poses a unique set of challenges to ESG integration due to limited disclosures across the asset class as well as the nature of the deals that are made. This is especially true for private credit secondaries, where information access is often limited.

Given the early-stage of ESG in private credit secondaries and limited existing materials to draw upon, careful thought was given on how best to integrate ESG into our credit funds. For climate risk and carbon accounting specifically, we chose to tackle the challenge of measuring and reporting on what is arguably one of the most complex asset classes.

The key challenges are, first, that the data within credit secondary funds is limited, as the underlying exposures are several steps removed from the credit secondary manager. Second, while a representative ownership percentage is straightforward in private equity exposures, it becomes significantly more complex in private credit, as exposures are fragmented into individual loans and do not reflect actual ownership of the underlying company.

Coller Capital’s solution is to make effective use of its dedicated ESG team, finance and investment team colleagues, in collaboration with a third-party sustainability and AI technology company, to solve this complexity in a holistic manner.

To achieve this, we created a tool that is applicable for a broad spectrum of credit portfolio exposures, with alignment to global ESG standards notably, Task Force for Climate-Related Financial Disclosures (TCFD) and its successor, ISSB S2, PCAF (Partnership for Carbon Accounting financials) as well as the GHG (greenhouse gas) protocol.

A project led by Coller’s ESG team, and in collaboration an AI company, has delivered a sophisticated tool for credit asset managers. Previously, manual processes limited efficiency and accuracy. The platform we developed with our AI partner solves this by automating financed emissions, capture and calculation, adhering to the PCAF methodology (Partnership for Carbon Accounting Financials). This ensures data accuracy with real-time updates and eliminates the need for manual calculations.

The platform displays a transparent data journey, encompassing data collection, attribution factors, asset carbon emission assessment, and carbon intensity evaluation.

This is a more refined approach compared to traditional methods and ensures a clear understanding of an institution’s financed emissions. The automated dashboard gives real-time insights, while proxy approaches help to ensure complete data capture.