AUSTRALIA Trends and Developments Contributed by: Lewis Grimm, Alastair Gourlay, Dean Bao and Emily Tsoi, Jones Day
ESG, disclosure and deal terms: diverging global expectations Environmental, social and governance (ESG) considerations are no longer fringe in Australia; they are embedded in investor mandates, legal frameworks and, increasingly, financing terms. While the political backlash against ESG-linked lending is gaining traction in parts of the US, Australian institutional investors, including superannuation funds, are keen to demonstrate climate-aligned and ethically governed invest- ment practices. In contrast, many US-based sponsors and financial institutions are pushing back against ESG-linked pricing and disclosure, citing political uncertainty or fund mandate con- straints. As a result: • margin ratchets tied to ESG metrics are com- mon across mid and upper-mid market deals; • companies are now required to disclose climate-related financial risks under IFRS S2-aligned standards; and • failure to meet disclosure or emissions targets may impact reputational risk, cost of capital or even availability of funds. Australian lenders, particularly superannuation funds, now treat environmental, social and gov- ernance performance as a loan pricing variable. Sustainability linked loans move margins up or down based on measured reductions in carbon emissions or improvements in diversity targets. A mandatory climate risk disclosure regime, aligned with the International Sustainability Standards Board, delivers audited data from 2025 onward, making KPI verification more reli- able. Green bonds and transition-linked instru- ments are also gaining traction for renewable
Sponsors like the format for its portability and simplicity. Lenders like it for its jurisdictional alignment and reduced judgment enforcement risk. Tapping the US market: a narrowing path Historically, larger Australian corporates and sponsors have accessed the US syndicated TLB or high-yield bond markets for scale, pric- ing and flexibility. However, 2025 has brought headwinds. • Base rate volatility and inflation have pushed investors towards shorter-dated paper. • US credit funds are more selective, demand- ing higher spreads and tighter terms. • Execution timelines and underwriting appetite are no longer as predictable. As a result, many borrowers are electing to exe- cute financings domestically or regionally, even if it means smaller ticket sizes or higher pricing. In particular: • unitranche remains the first port of call for sub-AUD500 million financings requiring fast execution; • Aussie TLBs are emerging as viable options, offering sponsor-friendly terms through local syndication or clubbed private placements; and • Asian private credit funds are increasingly stepping in, particularly on transactions with regional exposure. Global participants should not assume that US terms will automatically travel. Execution in Australia often requires local market intelligence, legal structuring to address local tax and secu- rity issues and flexibility on allocation.
38
CHAMBERS.COM
Powered by FlippingBook