DENMARK Trends and Developments Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
corporates and private equity and institutional investors highlights the importance of integrat- ing ESG criteria into financial strategies. For sev- eral years, loans aligning with ESG criteria and offering favourable terms for projects or compa- nies meeting specific sustainability criteria have played a role in the Danish market, including in acquisition financing. Large Danish corporates were initially at the forefront of incorporating sustainability-linked features into their financing packages and Euro Medium Term Note (EMTN) programmes. These companies recognised the importance of sus- tainability and sought to align their financial strategies with their ESG goals. By integrating sustainability-linked loans, they could benefit from favourable loan terms while promoting their commitment to environmental and social responsibility. Following the lead of large corporates, private equity and institutional investors began to incor- porate sustainability-linked features into their financing structures. This trend started with subscription facilities, where investors could access capital based on their commitment to sustainability criteria. Over time, these investors extended the use of sustainability-linked loans to individual investment levels, further embedding ESG principles into their financial strategies. Despite the initial momentum, sustainability- linked loans are not as prevalent in the Danish market as in previous years and certain factors have contributed to this trend, including: • ambitious ESG policies: certain corporates have developed ambitious ESG policies that surpass the benefits offered by sustainability- linked loans. These companies have integrat-
ed sustainability deeply into their operations, reducing the need for external incentives; and • reduced value as ESG tool: the initial round of adoption of sustainability-linked loans in Den- mark was accompanied by a high degree of expectation from the borrower’s stakeholders that the borrower must meet all ESG targets linked to the sustainability-linked loan each year. This led to pressure from borrowers on the lenders to implement very achievable ESG targets, which again led many sustaina- bility-linked loans to be seen as unambitious pro forma documents with limited actual impact on the borrower’s ESG profile. The future market for sustainability-linked loans in Denmark is expected to comprise smaller cor- porates embarking on their ESG journey. These smaller companies are expected to integrate sustainability-linked loans into their financing structures as they recognise the importance of sustainability in their operations and seek to meet stakeholder expectations. This may fur- ther lead to sustainability considerations being embedded into the fabric of Danish acquisition finance. Debt Capital Markets Debt capital markets continue to play a key role in the Danish acquisition finance market. Cor- porates are financing acquisitions with bridge- to-equity structures and/or bridge-to-bond structures, taking advantage of more attractive interest rates and favourable market conditions. This trend is particularly evident in large-scale corporate M&A transactions, where the bond market provides a viable supplement or alterna- tive to traditional bank financing. Private equity players, especially in “buy-and- build” portfolio companies are also tapping into the bond market. They benefit from a low differ-
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